EPS Higher Pension

Govt has given a golden opportunity for EPFO subscribers to apply for higher pension. The main focus of this article is to help retired/just about to retire people in calculating the dues, approx. higher pension and applying for a higher EPS pension. I will give my perspective on whether young subscribers should/shouldn’t opt for higher pension towards the far end of this article.

As of today, the last date for applying for a higher pension is 11 July 2023.

Is higher pension beneficial for retired/just retired/about to retire EPFO subscribers?
The answer is a big Yes. Anyone who is telling you otherwise is either lying or doesn’t understand how EPS higher pension works. The main reason why it makes a compelling case for this category of subscribers is certainty. As a retire/about to retire person, you know exactly how much you have contributed to EPFO and therefore you get to know exactly how much you need to refund, and how much you will get as pension/pension arrears. Also, given your current health condition, you will have a good idea about your longevity in usual circumstances.

How to check EPF/EPS wage for past years?
You can check your past employer payslips or EPFO passbook to understand the wage (Basic+DA) that was considered to calculate your EPFO contribution for each month. Please note that other components of your salary are of no consequence here. Only basic+DA is to be considered.

How to calculate the amount you need to refund back to EPFO to opt for higher pension?
Simply enter your wage details (Basic+DA), in column E of this Excel calculator provided by EPFO.

You need to enter wage details in worksheet1 , then worksheet3 and worksheet4 will tell you exactly how much you need to refund back to EPFO. Let’s say this amount is X.

How to calculate your higher pension?
In this same Excel sheet, simply select M months and see the Average. Now use this formula :

[[Average (Basic+DA) of last M months] x [N yrs of pensionable service]] / 70

Points to note here:
1. the ‘M’ months = last 60 months if you retired after Sept2014. In case you retired before Sept2014, it will be the last 12 months. Even better yeah!
2. Keep in mind that the M months need to be considered from the date of exit from EPFO, not your date of retirement. For example, if somebody retired at 60 (in 2017), but the EPFO contribution ceased at 58 (in 2015) then the last 60 months are to be considered from 2011 to 2015.
3. If you have let’s say served 18 yrs and 3 months, then your yrs of service is considered as 18 yrs. If you have served for more than 20 yrs, you get additional 2 yrs added in ’N’. The maximum value of N is fixed at 35, so even if you have served for let’s say 40 yrs, still your N will be = 35 only.
4. By now you may have figured out that the 70 as a denominator is just there to ensure that the maximum pension that you can get is half of the average wage (Basic+DA) that you got in proceeding ‘M’ months before you cease to be an EPFO subscriber.

How to apply for higher pension online?
Simply go to the UAN website and click on this flashing link. Fill in the details asked and upload relevant documents and you are done. These days cybercafe guys are very well-versed in filling out this form, you may take their help in case you are not comfortable filling this form on your own.

How to calculate arrears?
Another cool factor working in favor of retired employees is the fact that the higher pension is going to be calculated from the date of exit from EPFO. Based on the higher pension calculated as mentioned above, you can calculate your approximate arrears by multiplying the annual pension difference (between what you get today vs higher pension) with the number of years that have elapsed since your exit from EPFO. So, if someone exits from EPFO in 2015 then s/he will get higher wage arrears calculated from that year onwards along with the same interest that the EPFO is charging while calculating in the “refund to the EPFO” calculator. In cases where such exit has already happened 4 or 5 yrs back, the arrears amount of a retired employee is going to be more than the refund s/he has to give back to the EPFO, making it a compelling case to opt for higher pension.

How to know EFPO date of joining/exit and the number of yrs to be considered for service in case you know your PPO number but don’t remember the rest of the details?
You can get those details using EPFO’s PPO link.

What happens if I took/taking VRS when I was 56 yrs old?
If you exit EPFO 2 yrs before the normal EPFO exit age of 58. Now you have the option to start your pension right away or differ till you turn 58. In case you choose to start your pension at 56, you will get 8% less (4% for each year less than the usual exit age of 58) than your usual exit age pension calculation. Meaning if your pension calculation as described above comes as Rs 100/month, then you will get only Rs92/month instead. In case you choose to start your pension at 58, you will receive Rs100/month as usual.

Now, coming back to whether younger EPFO subscribers should opt for higher pension or not?
The on-paper calculation of your higher wage will always look awesome in case of a happy path scenario. The happy path scenario is when:

1. your Basic+DA keeps increasing by some %age till your turn 58. Even if you consider a meager increase of 6% annually, still it will turn out to be a good factor. You can use this Zoho Pension calculator to estimate your EPF corpus, and the difference in EPS corpus if you opt/don’t opt for higher pension.
2. There is no goggly thrown by govt, for example, increasing the consideration from the last 12 months to the last 60 months significantly brought down the per month pension calculation for people who retired after Sept2014. Now assume that in 2045 the govt says that instead of the last 60 months, they will consider the average of the whole service! The monthly pension calculation will take a huge body blow.
3. You are working and earning your highest (Basic+DA) between 53 to 58 yrs of age. Because even if you are earning your best at say 40 to 50 yrs of age, it doesn’t matter. The calculation takes into account only the last 60 months.
4. and obviously, you don’t die immediately after you start your pension. Because if you do then your spouse is going to get only 50% of what you were slated to get. Also, keep in mind that there is no return of the total EPS contribution. So the longer a person remains the primary pensioner, the more benefit s/he stands to get.

scroll below to see the result of this consideration for old vs higher pension

Benefits offered under EPS Pension

The Employee Pension Scheme (EPS) offers several benefits to govt as well as private sector employees who are covered by the Employees’ Provident Fund:

1. Pension for life: Members and their spouses are eligible to receive a pension starting at the age of 58. The pension amount is determined based on the number of years of service and the basic salary.
2. Pension for widows: In the event of a member’s death during service, the widow is entitled to receive the pension for life or until she remarries. Additionally, if there are two children, they will receive an extra amount equal to 25% of the pension.
3. Pension for orphans: If there is no widow, two children of the deceased member will receive 75% of the pension until they reach the age of 25. If there are more than two children, the benefit will continue until the youngest child turns 25.
4. Disability benefit: If a member becomes permanently and totally disabled during service, they will receive a full pension for life.
5. Early pension: Members have the option to choose early pension after the age of 50, but they will incur a reduction of 4% for every year before reaching 58.
6. Bonus years: If a member has contributed to EPS for a minimum of 20 years, two bonus years are added to the calculation, which can increase the pension amount.

These benefits are aimed at providing financial security to employees and their families in various circumstances such as retirement, disability, and death.

the difference will be recovered in approx. 6 yrs

Basically, if you opt for higher pension then your EPF corpus is set to take a good dent. But if you look closely, you’ll find that in the case of a happy path, you are set to recover this dent within 5 to 6 yrs given that you don’t die soon after starting your pension. The biggest concern that I personally see as an argument against going to higher pension, for younger subscribers who have 20–30 yrs of service left before they turn 58, is the fact that govt can change the rules/pension policy Act as per their convenience. If you are data-savvy, here is a one-stop look at EPFO’s current subscribers and pensioners. There are many reports which suggest that financially this scheme is not viable.

Secondly, there are concerns about the viability of the EPS scheme. In the past, various actuarial studies have projected very high deficits in the scheme. As on 31 March 2019, the deficit was projected to be Rs.37,327 crore. “With the increase in the number of pensioners, the amount disbursed as pension has also shown a steady increase over the years. However, the fund has not witnessed any cash flow problems till now, in spite of there being a projected actuarial deficit in the valuation of the fund,” notes the annual report of the EPFO for 2021–22.

However, I am not much worried about this aspect because the guarantor of this scheme is the sovereign govt of India which can print notes to fund this scheme even if such an act is not good for the overall economy.

Conclusion

• If you are a retired/just retired/about to retire EPFO subscriber, then there is virtually no reason for you to not take the higher pension. if your arrears are higher than your dues back to EPFO then it makes the case even more compelling since you don’t have to spend anything out of your pocket today. You must go ahead and apply for higher pension.
• If you are a young EPFO subscriber with decades before you retire, then you should decide based on your financial, health, and other conditions and beliefs. I know people who want a large EPF corpus because they are sure that they can make more money out of it than the higher pension that EPFO will provide. I also know people who have complete faith in govt with the assumption that the govt won’t throw a googly again.