Business News Desk, The recent guidelines of EPFO (Employees’ Provident Fund Organisation) states that eligible employees who had earlier not opted for higher pension contribution under EPS can now do so. However, there are certain reasons why you may want to avoid opting for higher pension contribution. Let’s know about it…
The biggest drawback of opting for higher pension is that a part of your EPF corpus will be reallocated to the EPS scheme from the date of joining to get higher pension. Transferring EPF money to EPS will reduce the benefit of compounding you have earned over the years as an EPF member. Hence, before going for the higher pension option, you must take proper precautions.
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lump sum payment
All the money in PF account is yours. In case of your death, the entire amount is given to your nominee/legal heirs. But on death under EPS, the spouse will get only 50 percent of the pension. There is no lump sum payment in EPS. Hence you should consider your life expectancy before opting for a higher pension.
EPS does not provide any lump sum payment. It gives you pension based on your accumulated corpus. Instead of opting for higher pension under EPS, you can consider other government supported options like NPS which will provide market linked returns and lump sum amount to buy annuity on retirement. Moreover, NPS contribution also provides for an additional deduction of Rs 50,000 over and above the deduction of Rs 1.5 lakh available under Section 80C.
There is a lack of flexibility in the EPS scheme. Also, the interest earned through EPS amount is not the same as that of EPF, which is usually higher.
For those who are planning for early retirement, it may not be a good idea to opt for higher pension of EPFO as a person is eligible for pension under EPS only after completing 10 years of service and attaining the age of 58 years. It happens.