Data released by the finance ministry which revealed over Rs 26,000 crore is lying unclaimed (means Investors have not claimed) with the Employees Provident Fund Organization (EPFO).
I was shocked after looking at this data and started studying about functions of EPFO and how it works. During my study, I found there can be many reasons for pulling up this huge unclaimed amount but one interesting factor which I assume can be the Employees' Pension Scheme (EPS).
Whatever I write below applies only to employees of the Private sector in India (including IT and BPO employees), since Govt. companies have their separate pension funds (as far as I know).
We all know what EPF – Employee Provident Fund is. A small part of your salary (12% of your basic salary) is invested in something called EPF and an equal amount is matched by your employer each month.
This is what 95% of people know about EPF. But there are many things I believe in EPF that a lot of people don't know and this article is going to open some not known secrets of EPS.
I did a survey within my friend circle and the interesting fact is that 99% didn't know what is EPS and 1% knew that it was me (even I came to know when I was researching this data).
Do you know that there are two elements in EPF – one is called EPF and the other is EPS? The EPF is actually for your provided fund and EPS is for your pension.
The 12% contribution from your side goes to EPF, but the 12% contribution which your employer makes, out of which 3.67% of your basic salary goes to your EPF and 8.33% of your basic salary or Rs 541 whichever is less goes to EPS.
So understand it this way, a part of your employer contribution makes up your pension corpus. As per data Rs 1, 83,429 crore was the corpus of the EPS as of March 31, 2013.
You must be thinking that you regularly get compound interest each year on your contribution + employer contribution. But it does not work like that. The compound interest is provided only on the EPF part.
The EPS part (8.33% out of 12% contribution from your employer or Rs 541 whatever is minimum) does not get any interest.
You are thinking you will get the total EPF+EPS amount, when you quit your job the answer is a big "NO". You always get 100% of your EPF part, but for EPS there is a separate rule. I am not going detail into about that calculation.
But there are some caveats to this, which I will bring to your attention:
If you have completed at least 10 years of service, you start getting a pension from this pool after you turn 58.
If your basic salary is more than Rs 6500 then the amount that goes towards your EPS is Rs 541(the EPS rules place a cap on the maximum basic salary which is used to calculate your contribution and your monthly pension).
The maximum pension per month is subject to a maximum of Rs 3,250 per month.
What a Peanuts!!! Imagine after 30 years how can someone survive with a monthly pension of Rs 3250. Is the government not aware of inflation? This is a scheme by the Govt and for the Govt, to cheat people of their retirement money. The government needs to rethink this scheme or amend it.
Recently our Prime Minister Mr. Narendra Modi launched a website "MyGov" where citizens can give their opinions and views on important issues. I urge those who are reading this article to give their suggestions on this issue ultimately it's our money which will protect our old age.
Disclosure: I am writing this post as per my understanding of the EPS and for educational and informational use.
