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  1. EPF vs EPS: Know how they work, benefits and which one is better for saving money

EPF vs EPS: Know how they work, benefits and which one is better for saving money

The government of India has launched multiple saving and investment schemes over the years to help people secure their future by saving their hard-earned money.

By: | New Delhi | Published: May 3, 2018 4:48 PM
EPF vs EPS: EPF account is transferable. (AP)

EPF vs EPS: The government of India has launched multiple saving and investment schemes over the years to help people secure their future by saving their hard-earned money. Among those, the two most common are Employee Provident Fund (EPF) and Employee Pension Scheme (EPS). The two pension schemes are offered by the government to help employees secure their retirement days. The two government schemes give assured returns on investments and are designed mainly for salaried employees.

How does an EPF account work?

EPF is a retirement benefits scheme and helps salaried employees save a good amount of money for their post retirement life. According to the scheme, both the employer and the employee contribute 12 per cent of the latter’s basic salary to the EPF account. Hence, the total contribution per month is of 24 per cent of employee’s basic salary. An employee can withdraw a part of the deposited amount in certain conditions or in full after remaining unemployed for more than three months. Also, the EPF account can be transferred from one organisation to another.

What is EPS and how it works?

EPS is a government-backed pension scheme. Under this scheme, apart from the subscriber, nominees also receive pension. Out of the total amount deposited by an employer, 8.33 per cent goes towards the employee’s EPS account. The amount deposited towards the person’s EPS account is subject to a maximum of Rs 1250, according to a report by Bank Bazaar. Till September 2014, the contribution was capped at 8.33 per cent of Rs 6,500 which worked out to Rs 541. The capped wage was subsequently raised to Rs 15,000 and the contribution to the EPS account increased to 1250 which is 8.33 per cent of Rs 15,000.

EPF vs EPS:

EPF accounts provide handsome interest on investments, and the current interest rate is 8.75 per cent. As for EPS, because it is a pension scheme it does not offer any interest to the employee. Hence, no interest is earned on the amount collected in EPS. In EPS, a person has the option to withdraw entire savings or get it transferred by obtaining a ‘scheme certificate’.

The employee does not have to make any contribution towards the EPS account as only the employer contributes to it. However, both the employee and the employer are responsible for contribution in EPF account.

EPF and EPS benefits:

EPS provides pension benefits. Under the scheme, lifelong pension is available to the member and upon death, members of the family are entitled to the pension. Employees can receive the pension after serving for a minimum of 10 years and reaching the age of 50. However, the EPF account provides no such pension benefits.

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