EPF vs EPS: Difference Between Employee Provident Fund and Employee Pension Scheme

EPF vs EPS refers to the comparison between the Employee Provident Fund (EPF) a retirement savings scheme and the Employee Pension Scheme (EPS), which provides a monthly pension after retirement. Both are managed by the Employees’ Provident Fund Organisation (EPFO) and form part of India’s social security system for salaried employees.

What Is the Employee Provident Fund (EPF)?

EPF full form is Employee Provident Fund. It is a retirement savings scheme mandated by the Employees’ Provident Fund and Miscellaneous Provisions Act 1952. This scheme is designed to help employees save a portion of their monthly salary, which accumulates with interest over time and provides a lump-sum corpus at retirement.

Both the employee and the employer contribute to the EPF account. The current rate of employee contribution is 12% of the basic salary and dearness allowance. The employer also contributes 12%, but a portion of the employer’s contribution goes towards the EPS. You can access your EPF login online to view your account balance and manage your EPF account.

Benefits of EPF

• Disciplined Savings: EPF encourages regular savings for retirement.
• Tax Benefits: Contributions, interest earned, and withdrawals are tax-free under certain conditions.
• Compound Interest: Your EPF balance grows with compounded interest, leading to significant savings over time.
• Loan Facility: You can borrow against your EPF balance for specific purposes, such as home renovation or medical emergencies.
• Withdrawal Options: Under certain conditions, you can withdraw your EPF balance for expenses like education, marriage, or home purchase.

What Is the Employee Pension Scheme (EPS)?

The full form of EPS is Employee Pension Scheme, a social security scheme under the Employees’ Provident Fund Organisation (EPFO). EPS provides pension benefits to employees after retirement, ensuring a steady income post-retirement. Contributions to EPS are made by the employer as part of the overall provident fund contribution, offering financial security and support in old age or in case of disability or death.

Benefits of EPS

• Monthly Pension: This provides a steady income stream after retirement.
• Social Security: This ensures financial security for employees and their families in old age.
• Early Pension: Early pension allows early pension withdrawal under certain conditions, such as disability or medical emergencies.
• Nomination Facility: You can nominate a family member to receive the pension benefits in case of your death.

EPF vs EPS: Difference Between EPF and EPS

EPF (Employees’ Provident Fund) and EPS (Employee Pension Scheme) are retirement schemes managed by EPFO with different objectives EPF builds a retirement corpus, while EPS ensures monthly pension post-retirement.

Which is Better: EPF vs EPS

EPF (Employees’ Provident Fund) is generally better in terms of wealth creation, as it builds a larger retirement corpus with interest. EPS (Employees’ Pension Scheme) offers a fixed monthly pension post-retirement but requires longer service.

1. EPF: Ideal for those seeking higher retirement savings.
2. EPS: Suitable for those wanting a steady pension income.

Conclusion: EPF offers better flexibility, higher returns, and lump-sum benefits, making it more beneficial for most employees. EPS is best if you prefer a monthly pension after retirement.

Who Is Eligible for EPF and EPS?

To be eligible for EPF (Employees’ Provident Fund) and EPS (Employee Pension Scheme):

1. EPF Eligibility:
   
   1. All salaried employees earning up to ₹15,000/month must mandatorily register.
   2. Employees earning above ₹15,000 can voluntarily opt for EPF.
   3. The employer must have 20 or more employees.
2. EPS Eligibility:
   
   1. The employee must be a member of EPF.
   2. Monthly salary must be ₹15,000 or less at the time of joining.
   3. Minimum 10 years of service is required for pension eligibility.
   4. Pension begins after the age of 58 years.

Both schemes are managed by the Employees’ Provident Fund Organisation (EPFO).

How are EPS and EPF calculated?

Here is how EPS and EPF are calculated:

• EPF: Every month, 12% of your basic salary and dearness allowance is contributed to your EPF account. The good news is that it’s not just you contributing; your employer matches that 12%! This combined contribution steadily grows over time, thanks to the power of compound interest. You can easily keep track of your growing nest egg by checking your EPF balance online through the EPFO portal.
• EPF Calculation: EPF = 12 % × (Basic Salary + Dearness Allowance)
• EPS: While you do not directly contribute to EPS, your employer sets aside 8.33% of your basic salary (capped at ₹15,000) towards your pension fund. This contribution funds your monthly pension after retirement. The actual pension amount you receive depends on how long you’ve been contributing (your years of service) and your average salary in the final years of your employment.
• EPS Calculation: EPS = 8.33 % × (Basic Salary capped at ₹15,000)

Is the EPF or EPS Account Transferable?

Yes, both EPF and EPS accounts are transferable when you change jobs. You can transfer your accumulated balance and service history to your new employer’s EPF account, ensuring continuity in your retirement savings and pension benefits.

Is it Possible to Withdraw EPF Before Maturity?

Life throws curveballs, and sometimes, you need access to your retirement savings before you retire. The good news is that EPF allows for partial withdrawals under certain circumstances, such as:

• Unemployment: If you have been unemployed for over two months, you can access your EPF funds to tide you over.
• Medical Emergencies: If medical emergencies require significant expenses, you can withdraw from your EPF.
• Education: Need funds for higher education? EPF allows for withdrawals for this purpose.
• Marriage: Planning a wedding? You can withdraw from your EPF to cover wedding expenses.
• Home Purchase or Construction: EPF can also be used to finance the purchase or construction of your dream home.

However, each type of EPF vs EPS withdrawal online has specific rules and conditions, so it is essential to check the latest guidelines on the EPFO portal.

Conclusion

Understanding the EPF and EPS difference is crucial for effective retirement planning. EPF can help you accumulate savings for retirement, EPS provident fund can provide a monthly pension after retirement. You can maximise your contributions and understand the EPF vs EPS withdrawal rules by exploring the different aspects of EPF and EPS. This can help ensure a financially secure retirement.