The link to apply for EPFO’s higher pension option is now available online. As per the Supreme Court judgement and a recent EPFO circular, the higher pension option is applicable for individual members who have been contributing since before September 1, 2023.
Currently, 8.33% of the contribution made by the employer goes towards the EPS account. However, as the maximum pensionable salary is capped at Rs 15,000, the monthly contribution to each EPS account is only Rs 1250 (8.33% of Rs 15,000) in most cases. Under the higher pension option, the EPS contribution amount will increase as employees will have the option to contribute 8.33% of the actual basic pay+dearness allowance. The higher contribution will result in a higher pension.
However, many subscribers are still confused as to whether they should apply or not. Following are a few key details that you should know to understand whether you should apply for or avoid the higher pension option.
Who should apply
Experts say that this option may be beneficial for those subscribers who have no other pension options or other investments to support their post-retirement life. (Also read: EPFO higher pension calculation)
It is important to understand that the higher pension will come from your own money, that is the amount you have contributed to the EPF account till now and will contribute in the coming years. To make the higher pension possible, the EPFO will have to move funds from your PF account towards EPS to make up for the past years when employees contributed less. Therefore, the higher pension option will benefit subscribers who want a higher pension on retirement instead of a huge lump sum.
Employees, who have invested in other options are expecting to receive a lump sum, can also opt for a higher pension. (Also read: 5 reasons to apply for higher pension)
Who should not apply?
If you want a huge lump sum on retirement, the higher pension option may not be good for you. It is also important to note that the monthly pension is taxable at the applicable slab rates. In Budget 2023, the Government proposed to provide standard deduction pensioners (Read more details on standard deduction here).
“People who are looking at a lumpsum amount on retirement can choose not to opt for a higher pension,” says Pratik Vaidya, MD and CVO at Karma Global, an HR and Compliance Organisation.
Retired employees and widows, who have already been receiving EPS pensions, may be at a disadvantage if they apply for a higher pension as it may not be feasible for them to return the whole amount or to the extent as notified by the EPFO.
Also Read: 5 reasons to avoid higher pension
Vaidya says that the higher pension will come from your own money and the Government, EPFO or the employer is not going to give you additional money on this. “So the equation is simple, you have two baskets on either side with equal fruits. What you will be doing is taking out from the other basket and putting in the pension basket which will get full but the other basket will become less. In effect, you will be compromising on the lumpsum PF basket,” he says.
You should thoroughly assess your individual situation and requirements, or take advice from a professional retirement advisor, before deciding whether to apply for the higher pension option or not.