Should I opt for a higher pension or continue with the same pension from EPFO? What are the points to keep in mind? 

Jyotika, Delhi 

By Sushil Jain, CFP 

While doing personal financial planning one should give top priority to retirement planning. One can manage all other goals through various loans but there will be no loan for retirement expenses. As there are very few or no assured return products for long-term horizon, EPFO offers a very suitable and useful solution for retirement planning. The EPS scheme’s higher pension benefits provide much-needed financial security and peace of mind as far as retirement expenses are concerned. This scheme also helps us to follow the principle of saving first and then doing expenses.  

Besides, it is a very attractive and beneficial scheme. The decision to opt for it or not should be taken only after a detailed analysis of the financial status of an individual. The higher contribution may be suitable in the following conditions. 

If you do have not any other sources of regular income after retirement like a personal pension, annuity plan or any other fixed passive income from investment or rent etc, a higher EPS pension may be beneficial. 
If you are not willing to plan and manage funds for retirement, then a higher contribution is advisable for you. It will give you peace of mind for your golden years. 

If you have already set aside the emergency fund then the higher contribution may be suitable for you, as a higher contribution reduces your liquidity which you may require in case of emergency. If you are able to manage your short and medium-term financial goals with less in-hand salary (due to higher contributions) then you can think of a higher contribution. 

Apart from the above condition, you must understand the following factors 

1)   You will not get any funds out of it

It benefits the individual who wants a higher monthly pension but does not require a huge lump sum upon retirement. So, if you have or plan for a huge lump sum through your other investments then only it will beneficial for you as you will not get any funds out of it. 

2)   You may have a liquidity problem 

If you are not able to maintain your proper cash flow, then a higher contribution may create negative cash flow which may lead to unwanted debts. 

3)   You will not have funds to manage and generate extra return 

If you are good at managing finance and want to participate in India’s growth story, you may not have sufficient funds to generate an extra return. 

4)   If you plan early retirement and start your own venture you may need funds

If you have an entrepreneurial mindset and plan for early retirement to start your own venture then you may need extra cash flow for your business which may not be possible with this scheme. 

5)   Taxation 

Last but not least, a monthly pension is taxable but a lump sum given after retirement is tax exempted. 

It is very much clear that one should have a retirement plan in place whether through EPFO or any other pension or passive income. Based on the above factors one should decide whether he should go for it or not or can take help from a qualified financial planner. 

(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)

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