The Employees Provident Fund Organisation (EPFO) has extended the deadline for subscribers to opt for higher pensions till May 3, 2023. The joint option for employees who were in service prior to September 1, 2014 and continued to be in service on or after 01.09.2014 but could not exercise joint option under the Employees’ Pension Scheme can do so now on or before May 3, 2023, EPFO said on its website.
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EPFO’s guidelines on higher pension have been issued in compliance with Supreme Court's November 4, 2022 order.
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EPFO has now allowed subscribers to go beyond the pensionable salary capped at Rs 15,000 a month on which employers deduct a sum equal to 8.33 percent of the ‘actual basic salary’ towards pension under EPS. This means that an employee and an employer can sign up together, requesting the EPFO to deduct 8.33 percent of the higher monthly basic salary, thus ensuring larger accumulation towards pension over their work life.
According to the EPFO circular, the following employees along with their employers can submit the joint option to the concerned regional office –
Employees and employers who had contributed on salary exceeding the wage ceiling of Rs 5,000 or Rs 6,500
Employees and employers who did not exercise the joint option in the previous window while being EPS members
Employees who were members before September 1, 2014, and continued to be a member on or after that dateSubscribers will have to apply jointly with employer for the enhanced benefit in the application form prescribed by the commissioner and all other required documents like joint declaration etc.
More details related to the timelines of the application process will be provided by the Regional PF Commissioners soon. All applications will have to be digitally logged, for which a separate URL facility will be provided by the EPFO. It is expected that EPFO will soon make the URL facility functional and provide further details on the application process and the pension calculation.
According to Sumit Sabharwal, CEO at TeamLease HRtech, employees should consider their retirement objectives and financial requirements before opting for a higher pension.
"If a steady income after retirement is the highest priority, investors should opt for it. But, if investors want flexibility and diversity in the retirement plan, they should explore options beyond EPFO," he told CNBC-TV18.com.
Sandeep Sehgal, Partner at Tax, AKM Global also believes that higher pension should be perceived from the long-term retirement goals perspective.
"It would surely provide an increased monthly income after retirement years and would prove to be a beneficial option for individuals who are not having any other source of retirement income. On the flip side, if individuals have other sources of retirement income (such as personal pension or investment), a higher EPS pension is not beneficial. From the taxation standpoint, monthly pension would be taxable but lump sum amount given after retirement is exempted, subject to stipulated conditions," Sehgal said.
To conclude: opting for a higher pension may not be a good enough option for those who intended to plan retirement early since the individual can only opt for EPS after completing 10 years of service and 58 years of age.
There are many ways to secure post-retirement life, for example, equity investments for dividend income and capital appreciation, real estate for rental income, interest income from debt instruments, etc. Investors should spread their retirement savings among multiple baskets instead of concentrating them in a single investment vehicle.
