Higher EPFO pension: Why you should avoid going for it

“The extension of 60 days is available to employees who were members of EPF on September 1, 2014, and continued to be members of the EPF on or after September 1, 2014, but missed the opportunity to apply for higher pension before the expiry of earlier deadline. They can apply for the same on or before 3rd May 2023,” said Maneet Pal Singh, Partner, I.P. Pasricha & Co.

No extension has been provided to these employees

However, the employees who retired prior to September 1, 2014, and opted for higher pension under the pension scheme, made their contributions but their application was rejected by the EPFO must submit their application form on or before March 3, 2023. As no extension has been provided to these employees, he added.

What will happen if you choose higher pension under EPS?

Amit Gupta, MD, SAG Infotech said to provide a larger pension after retirement, a portion of an EPFO member’s EPF corpus will be moved to the EPS scheme from the date of joining if the person chooses the higher pension under EPS.

The employee owns the money in the EPF, and in the event of death for whatever reason, the nominee or legal heir is entitled to receive the whole amount.

Your early retirement plan may get jeopardised if you choose Higher EPS pension. “For individuals who want to retire early, applying for EPFO’s higher pension may not be a wise idea because EPS pension eligibility is only granted after 10 years of employment and 58 years of age. The person receives a pension from the EPS based on a formula and a lump sum tax-free amount from the EPF account at the time of retirement,” said Amit Gupta.

Availability of more effective alternatives like the government-backed NPS offering access to a configurable multi-asset portfolio and additional tax deductions could be a deterrent for more savvy investors with a longer residual period to retirement. “Additionally, the option may not make sense for those seeking an early retirement as the eligibility criteria for receiving pension requires the individual to have completed 10 years of service and must have attained the age of 58,” said Nirav Karkera.

According to Sumit Sabharwal, CEO of TeamLease HRtech, opting for a higher pension will reallocate your EPF corpus to the EPS scheme. Doing so will reduce the lump sum amount you receive at your retirement. So, employees need to decide whether they want a higher lump sump or a higher pension during their retirement days. But, if you want flexibility and diversity in your retirement plan, you can explore retirement options beyond EPFO.

Who should go for it?

According to Nirav Karkera, Head of Research, Fisdom, the heart of it, the conclusion rests on two primary decisions. One, is EPF your product of choice for investing towards retirement and next, if a higher monthly pension appeals to you more than lumpsum benefits on retirement. If the response to both is in the affirmative, the subscriber may proceed to further explore the opportunity offered.

How to secure your post-retirement life?

There are many ways to secure your post-retirement life, for example, equity investments can provide you with dividend income and capital appreciation, real estate is a good option for a rental income, debt instruments can generate interest income, etc, said Sumit Sabharwal.

You may spread your retirement savings among multiple baskets instead of concentrating them in a single investment vehicle, he added.

Retirement fund body EPFO issued circulars on 29 December 2022, and 20 February 2023, providing instructions to eligible employees on submitting applications for higher pension under the Employees’ Pension Scheme (EPS).