EPS to National Pension System transfer proposal: Government's draft 'The Employees’ Provident Funds and Miscellaneous Provisions (Amendment) Bill, 2019'proposes to provide employees an option to switch between EPS and NPS.
EPS to National Pension System transfer proposal: Government’s draft ‘The Employees’ Provident Funds and Miscellaneous Provisions (Amendment) Bill, 2019’ has proposed to provide employees an option to switch between Employees’ Pension Scheme (EPS) and National Pension System (NPS). There is also a proposal to provide an option to reduce employee’s contribution towards Provident Fund to 10 per cent from 12 per cent.
Currently, 8.33 per cent of the employer’s contribution goes into the EPS for pension payment to the employee post-retirement. The employer’s total minimum contribution towards EPF and EPS is 12 per cent of basic pay and dearness allowance. The calculation to EPS is done on a basic pay of Rs 15,000 or the actual basic, if it is lower than Rs 15,000. Hence, if the basic pay of an employee is over Rs 15,000, the EPS contribution of employer would be 8.33 per cent of Rs 15,000, which is Rs 1250. The government’s draft bill has proposed to give EPF subscribers an option to switch from EPS to NPS.
Will EPS to NPS switch be good for you?
NPS is a contributory pension system. Any citizen of India in the age group 18 to 65 years can join the NPS. The National Pension System provides a subscriber with the freedom to choose the amount he/she wants to set aside for pension and save every year.
The rate of return under NPS is market-linked. The overall monetary benefit of the scheme depends on the amount contributed, duration of the contribution and the income generated from investment of subscribers’ money.
The fund contributed by subscriber under NPS are invested by PFRDA-registered Pension Fund as per set guidelines, which have been framed to ensure the subscribers face minimal impact even when there is market return.
The final benefit under NPS is not defined. Unlike EPS, the final pension wealth of the subscriber under the scheme may vary. It may go up substantially if returns are good in the long run. However, there are fears against NPS because it is market-linked.
RSS-affiliated trade union Bharatiya Mazdoor Sangh (BMS) is also against the draft law’s proposal. In a statement, the BMS said yesterday, “NPS is risky market-linked, return in EPS is much more than NPS as per the study of EPFO, EPS has more benefits like benefits to family members, insurance, widow pension etc. NPS has a lock period of 15 years for withdrawal, NPS is only a savings scheme with uncertainty of the return at the time of retirement.”
The government’s proposal is still in the discussion stage. Also, the draft only proposes to provide the employee with an option to switch from EPS to NPS. It doesn’t propose to make the switch mandatory. Hence, even if the present proposal becomes a law, the employee would have the freedom to apply his/her wisdom to choose what will suit them best.