change, the poor value for money of EPS is demonstrated by the accompanying table that contrasts the payments between EPS Pension, LIC annuity, and the interest on the lump-sum that would have accumulated had the EPS never been started (the calculation assumes the current wage cap of Rs 6,500 for benefits and contributions).
Over a 20-year career, the table shows that employees would be better off than contributing to EPS (option 1) if they had paid their contributions to LIC and bought a deferred annuity (option 2). But what is shameful is that they would even have been better off if they had paid their contributions to EPFO in the defined contribution account and used the lump-sum of PF at retirement to live off a fixed deposit in a bank (option 3). While acknowledging the interest rate risk in third option, it must be noted that in this case the principal amount is not lost and available to the pension to will to his or her successor. An expert committee appointed in 2010 to review EPS made a similar case that EPS should revert to the original defined contribution structure because it is unsustainable without impossible contribution increases. It also expressed horror that only 5% of the data used for valuation is accurate and complete, i.e. only 2.4 million of the 44.5 million members had complete date and everything else was assumption based. The committee also noted that is EPS increased wages applicable to contributions and benefits from R6,500 to R10,000 per month and promised a minimum pension of R1,000 per month sustainability will need an increase in EPS contributions from the current 9.49% (8.33 employer plus 1.16 government) to 14.75% and a number of benefit reductions (pensionable salary to be calculated on last three years wages, delete withdrawal and nominee pension option, disallow 2-year bonus option, raise early pension age from 50 to 55 and retirement age to 60).
EPS is on the wrong side of history; civil servants and most private sector employees have moved away from defined benefits pensions during the same period that the sustainable EPFO carved out