EPFO higher pension: Should you opt for it?

EPFO Higher Pension: The Employees Provident Fund Organisation (EPFO) has extended the deadline by 60 days to apply for higher pension as directed by the Supreme Court. All eligible members can opt and apply jointly with their employers for higher pension till May 3, 2023, at the unified members' portal of the retirement fund body EPFO. 

EPFO, which is one of the world's largest social security organisations, last week came out with a procedure to enable subscribers and their employers to jointly apply for higher pension under the Employees' Pension Scheme (EPS). It stated that a facility will be provided for which URL (unique resource location) will be informed shortly.

Also Read: EPFO higher pension: Deadline extended till May 3 to subscribe for higher pension

The question arises, will the higher pension option help the salaried class after retirement and what does it mean for EPFO subscribers:

1. No Compounding Benefit

Once an EPFO member opts for the higher pension under EPS, the portion of his/her EPF corpus will be reallocated to the EPS scheme from the date of joining to enable a higher pension after retirement. The transfer of EPF money to EPS will reduce the compounding benefit that he/she may have earned over the years by being an EPF member.

Also Read: EPF Withdrawal Process Online: Know how to fill EPF form - Step-by-step guide

2. 50% pension to spouse in case of death

The money in EPF belongs to the employee and the nominee or legal heir is eligible to get this full amount if he/she dies due to any reason. However, the spouse gets 50 per cent of the pension in case of death under EPS.

3. Not feasible for early retirement

Applying for EPFO’s higher pension may not be good for those planning early retirement, as the person becomes eligible for pension under EPS only after completing 10 years of service and 58 years of age.

Also Read: EPFO adds 14.93 lakh members in December 2022; Maharashtra, Tamil Nadu top list

4. EPF and EPS Basics

Generally, all salaried employees have mandatory EPF and EPS accounts. The 12 per cent basic deduction from the employee’s salary goes to the EPF account. Similarly, the employer also makes a contribution of 12 per cent, which gets split into EPS and EPF at 8.33 per cent and 3.67 per cent, respectively. At the time of retirement, the individual gets a lumpsum tax-free amount from the EPF account and a pension from the EPS based on a formula.