Today is last day to apply for higher pension from EPFO: Here are 10 things you should know

Today is the last day to opt for a higher Employees’ Pension Scheme (EPS) contribution. Thus, it is important to understand the scheme if you are looking to exercise this option. The EPS can be advantageous if you don’t have any other regular sources of income after retirement, such as a personal pension, annuity plan, or fixed passive income from investments or rent. In such cases, the higher EPS pension provides a valuable financial support system during your golden years. 

Furthermore, if you prefer not to actively plan and manage your retirement funds, it is advisable to consider a higher contribution towards the EPS. But, at the same time, it is important to know that that a higher contribution reduces your immediate liquidity, which may be necessary during emergencies. However, if you can effectively manage your short- and medium-term financial goals despite having a lower in-hand salary due to higher contributions, then considering a higher contribution becomes a viable choice. 

If you apply for a higher pension the EPS contributions will be calculated based at 8.33% of the actual salary of the employee. Earlier, EPFO used to provide pension calculated on the salary of the employee with a maximum cap at Rs 15,000.  

If you are thinking of applying, here are 10 things you should know about higher EPS: 

1) Who can apply: The higher EPS scheme does not apply to all employees. It specifically pertains to employees who were enrolled in the EPF on or before 2014. The eligibility criteria for the higher EPS scheme were defined in the Supreme Court judgment in EPFO (Employee Provident Fund Organization) vs. Sunil Kumar, which was decided on 04.11.2022. 

According to the court’s ruling, only employees who have made contributions to the provident fund based on their actual salary, which exceeds the statutory limit of salary (Rs 15,000) for coverage under the EPF, are eligible to claim the higher pension offered by the EPS. This means individuals who have contributed to the provident fund on their actual salary, rather than the capped limit, are entitled to seek the benefits of the enhanced pension scheme. 

2) How to apply: The employees who are entitled to claim higher pensions can now make an application online on the EPFO portal. The portal also contains guidelines for filling up the different columns one after another. To apply you need to visit Member E-Sewa portal at https://unifiedportal-mem.epfindia.gov.in/memberinterface/. There is an option for “Pension on Higher salary”, click on it. After that you need to fill in the required details to get the Aadhaar-based authorisation pin. For that, you need to fill in your UAN, Name, DOB, Aadhaar, mobile number captcha. You will then receive an OTP on your Aadhaar-based mobile number which you need to submit for validation purpose. 

3) Documents required: A recent circular issued by the EPFO provides an alternative verification mechanism for pensioners who could not submit proof of joint option under the EPF Scheme. Earlier there was the mandatory requirement of furnishing details of the option under para 26 (6) of the Scheme, 1952. Clause 26(6) allows employees to jointly request with their employer to contribute a higher amount to the fund, exceeding Rs 15,000, to claim a higher pension.  In the absence of availability of this data EPFO later relaxed the guidelines such as wage details submitted by the employer along with applications for validation of option / joint options, any salary slip / letter from employer authenticated by employer, Copy of joint request and undertaking from employer, letter from PF office issued prior to 04.11.2022 indicating PF contribution on higher wages. 

4) Reallocation of corpus: You need to understand that there will be a reallocation of the corpus from the EPF to EPS from the date of joining the scheme. This means a large portion of money needs to be paid from the EPF to the EPS to avail higher pension. Hence, it is advisable to estimate beforehand how much you are expecting to receive as pension at the time of retirement and based on that if it is better to let the money grow in EPF.
However, experts say still there is some ambiguity on the subject. “The EPFO is expected to issue additional guidance on how the higher pension would be calculated. Further, once the EPFO scrutinises each application, there could be lack of clarity on how transfers from the EPF account to the EPS account will be undertaken and how discrepancies between wage records maintained at EPFO level and that maintained at the level of employer will be resolved. What would happen if one of the employers is no longer in existence or has merged? These are some of the open questions,” Sowmya Kumar, Partner, INDUSLAW told Business Today. 

5) Additional 1.16%: In a recent notification dated May 3, the government announced new guidelines regarding contributions towards an additional pension. According to the notification, members who choose to contribute towards this pension scheme will now receive an increased employer contribution of 9.49%. This contribution is calculated by adding 8.33% and 1.16% to the PF wages. However, it’s important to note that this enhanced contribution will only be applicable for amounts exceeding the PF threshold of Rs 15,000. Earlier, EPFO had imposed this requirement of paying additional contributions on the pensioners. 

6) No lump sum: EPFP only pays you a monthly pension with no option of lump sum payment. Hence, opting for the EPS would depend on your life expectancy assumptions based on individual health and family history. Moreover, in EPS, when the person passes away 50 per cent of that pension amount is paid to the spouse. After that, there is no lump sum that is paid to the beneficiary of the spouse. 

7) Pension formula: Here you do not have a choice of lump sum at retirement, but, instead, you are paid a pension that is decided at the time of retirement based on the following formula: Member’s Monthly Pension = Pensionable salary X Pensionable service / 70 (Pensionable salary is the average monthly salary in the last 60 months.)
However, for applicants whose pension commenced before September 1, 2014, the calculation of a higher pension will be determined based on the average monthly pay received during the contributory period of service within the 12 months preceding the date of exit from the membership of pension fund. 

8) Pension eligibility: A person is eligible to receive a pension from the EPFO after completing 10 years of service, provided the person has attained the age of 58 to withdraw the pension amount. In case you want to withdraw early, you can do so after attaining the age of 50, but you will receive a lower EPS amount. However, one can also earn a higher amount by deferring pension for two years (up to 60 years) after which an additional rate of 4 per cent for each year is paid. 

9)  Cash flow: If you have aspirations of early retirement and a desire to start your own business, it’s important to consider the financial implications. Pursuing an entrepreneurial venture often requires additional funds, and relying solely on this scheme may not provide the necessary cash flow to support your business goals. 

10) Taxation: Additionally, it is important to consider the tax implications related to pensions. While a monthly pension is subject to taxation, a lump sum received after retirement is typically tax exempt. This contrast in tax treatment should be taken into account when planning for retirement.