Can you withdraw the pension portion of your EPF?

It is essential to understand the distinction between EPS and Employees Provident Fund (EPF). An employer generally deducts 12% of your basic salary plus dearness allowance, if any, from your monthly salary to contribute to the EPF account. This salary may also include any withholding compensation and the monetary value of food concessions, if applicable.

Your employer is required to contribute an equal percentage. However, out of the employer contribution of 12%, 8.33% is allocated to EPS. Above all, even if your base salary exceeds ₹15,000, the maximum retirement contribution will be capped at 8.33% of the ₹15,000, which is equivalent to ₹1,250. This ₹The eligible salary of 15,000 is subject to future revisions.

For example, if your monthly salary is ₹15,000, you and your employer would each contribute ₹1,800 each month at the EPF, a total ₹3,600. Since your base salary is at ₹Limit of 15,000, 8.33% ( ₹1,250) of the employer contribution will be transferred to the EPS. The remaining 3.67% of the employer contribution will be allocated to the EPF, which earns a fixed interest rate of approximately 8%, determined annually. Meanwhile, the entire employee contributions go directly into the EPF.

After a modification on September 1, 2014, new affiliated employees receiving a base salary higher than ₹15,000 per month cannot be part of the pension plan. If this is the case, the entire employer contribution will be returned to the EPF. If you joined the EPF before September 2014, you can continue to pay 8.33% of your employer contribution to the pension scheme.

Certainly, employees who contribute to the EPS and who have eligible contribution service of 10 years or more will receive a defined pension at age 58, or can opt for a reduced pension from age 50. The amount of the pension will be based on a calculation. as defined by the Employees’ Provident Fund.

Hindustan era said the EPFO ​​was considering removing the cap on the portion of employees’ salaries paid in retirement to allow those who want a higher pension amount to contribute more.

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Calculation of the pension

The pension scheme was designed to provide a fixed retirement pension for low-wage workers. Unlike the EPF, where the amount you receive is based on your contribution and the interest earned on it, the pension scheme is a “defined contribution, defined benefit” social security scheme, as opposed to a simple defined contribution plan.

Here is how the monthly amount of the pension is calculated. Take the average salary earned in the last 60 months, multiply it by the number of years of “pensionable service”, then divide it by 70, subtracting any non-contributory periods.

For example, if a person retires now and is eligible for the benefit, here is their pension amount. If the person has an average salary of ₹15,000 per month, as calculated above, and has 15 years of pensionable service, the person would get ₹3,214 per month. Keep in mind that the maximum allowable salary is capped at ₹15,000 per month.

Adarsh ​​Vir Singh, founder of Nidhi Niyojan and provident fund expert, said that apart from contributing 8.33% of salaries, the pension fund corpus also includes 1.16% of government salaries central via budgetary support.

This pension becomes eligible when the employee completes at least 10 years of eligible service. The EPFO ​​counts years on a half-yearly basis, which means a person who completes 9.6 years of service would be eligible. Service corresponds to the years in which he contributed to the EPS. In addition, pensionable service will be increased by a coefficient of two years when employees reach the age of 58 and have completed 20 years or more of pensionable service.

Anurag Jain, co-founder and partner of ByTheBook Consulting LLP said that in the event of the death of the employee, the family would receive a pension equal to the member’s monthly pension which would have been payable if the member had retired at the date of death or ₹1,000 per month, whichever is higher. This would benefit the member’s spouse, sons and daughters (including legally adopted children), subject to certain prescribed conditions.

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Early withdrawal

If an EPF subscriber accesses their account via the EPFO ​​website, they will see their funds divided into three categories: employee portion, employer portion and retirement portion. If a person has been unemployed for more than 60 days, they can withdraw employee and employer contributions. Even when you are employed, there are provisions to withdraw part of the corpus for things like buying a house, medical purposes, marriage, etc.

However, the pension part is subject to separate rules. If the pensionable service was less than 9.6 years (114 months), early withdrawal from the corpus is permitted. Once the 10-year mark has been reached, the pension share can no longer be withdrawn. This means that after 9.6 years of service, the pension portion is blocked until at least the age of 50. After 9.6 years of eligible service, the employee becomes eligible for defined benefit retirement benefits.

“Employees who have served less than 9 years and 6 months of pension have the option to withdraw their EPS contributions by filling online form 10C on the EPFO ​​portal,” Singh said.

However, there is the possibility of opting for an early pension from age 50 instead of age 58, with the disadvantage of a reduced pension amount. “The pension amount will be reduced at the rate of 4%, for every year the age does not reach 58 years,” Jain said. For example, this would mean a pension of Rs 2,186 per month at age 50, which is 32% less than the amount to be received at age 58. This reduced amount will remain constant throughout retirement.

“Similarly, employees who have reached the age of 58 and are otherwise entitled to a pension may be permitted to defer their pension beyond 58 years, but not beyond 60 years. In such a case, the amount of the pension will be increased by 4% subject to the maintenance of pension contributions until the end of retirement. deference period,” Singh said.

If an individual opts for an early withdrawal of capital before reaching the 10-year mark, the amount received will be calculated according to Table D of the EPF Act. For example, if you withdraw your pension share in the sixth year (at the 72nd month) and your salary was ₹15,000 at that time, the amount will be calculated as Rs.15,000 multiplied by 6.07 (the multiplier specified by the EPFO ​​as per each month by the EPFO), i.e. Rs.91,050. It is interesting to note that if the basic salary was ₹15,000 for these six years with a contribution of ₹1,250 (8.33%) each month, the contribution would be ₹90,000.

“Withdrawing BPA after 9 years of service is not a viable financial option as you barely get back the amount contributed, thereby continuing to accumulate a pension which will ultimately be a savior at retirement age,” Singh said .

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