Should you opt for higher EPS payout?

Subscribers to the Employees’ Provident Fund (EPF) can get a higher pension amount if they opt for a larger contribution to the Employees’ Pension Scheme (EPS). Contributions to the EPS scheme come from the employer’s contribution to the provident fund. Though linked to the basic pay, contributions to the EPS were capped as follows:Medium108408545 The Supreme Court judgment on the matter has paved the way for a higher pension for EPS subscribers. If a subscriber wants to get a higher pension, the contribution to the EPS has to be 8.33% of the basic pay. The subscriber will also have to deposit the deficit contribution of the previous years since he joined the EPS.To see how subscribers at different ages and income levels stand to gain from the scheme, calculations assume that the salary increase was 8.5% every year. Interest deficit has been calculated using historical interest rates offered by the provident fund. Boomers Who Are Retiring SoonA person joined EPS aged 28 in 1995, when his basic salary was Rs 10,000 per month. To be eligible for full pension, the subscriber should have contributed 8.33% to the EPS every month.Medium108408546 If the person opts for a higher pension, he will also have to contribute roughly Rs 8,200 to the EPS every month till he retires in March 2025 at the age of 58. The EPS pension will be linked to the average salary in the past 60 months. In this case, the average monthly salary since April 2020 will be Rs 91,090. Medium108408547 Gen X Subscribers Aged 35-40 YrsGoing for a higher EPS is even more compelling for those in the 35-40 age group. They will not have to deposit a large amount, though their monthly contribution will rise.Medium108408548 Persons opting for higher pension will also have to contribute roughly Rs 6,668 to the EPS every month till they retire in March 2035. The EPS payout will be linked to the average salary in the past 60 months. In this case the average monthly salary in the last five years from 2030 to 2035 will be Rs 1.82 lakh. Medium108408549 To Be Noted Opting for a higher pension makes perfect sense for subscribers in these situations. After all, the lump sum amount that will shift from the provident fund to the EPS will come back within a few years. But subscribers need to keep in mind a few things:Medium108408550 ➤ There are concerns about the viability of the EPS scheme. Annual accounts for 2020-21 indicate a drop in contributions to Rs 50,562 crore from Rs 51,953 crore in the previous year.➤ In the past, various actuarial studies have projected very high deficits in the scheme. There is no clarity on this front.➤ The changing demographics of India is also a problem. Right now, there are more contributors than pensioners. But as the population ages and more contributors turn pensioners (drawing higher pension), the scheme could face difficulties.➤ Pension is for life but EPS does not return the principal to the nominee or the legal heir upon the death of the subscriber.