Should I opt for higher EPS pension by contributing a lump sum?

After the current supreme courtroom ruling on the Employee Pension Scheme (EPS), EPFO subscribers, as of 1st Sep 2014, can retrospectively contribute 8.33% of their primary + DA to the EPS by way of a deduction from the EPF.The possibility to do that has been opened solely to a part of staff and is predicted to be expanded quickly. In this text, we will not get into the nitty-gritty of the judgement or eligibility criterion.Instead, we will deal with what eligible staff ought to do. Before we start, you will need to level out that this selection just isn’t eligible to those that joined the EPF after 1st Sep. 2014 as they don’t seem to be a part of the EPS.A considerable sum of a number of lakhs must be paid from the EPF to the EPS to avail higher pension. This will interrupt the compounding of the EPF corpus for those that nonetheless have a few years of service left.Suppose you pay the lump sum and opt for a higher EPS pension, estimate what it will be on the time of retirement.Instead, if you happen to let that cash compound in EPF and use it to buy a govt bond by way of RBI Retail Direct upon retirement, how a lot could be the curiosity payout? For instance, I used RBI Retail Direct to purchase authorities bonds and create an earnings supply.Suppose the RBI bond payout just isn’t a lot completely different from the EPS pension. In that case, the RBI bond is the superior possibility as a result of the bonds will be held collectively along with your partner in both or survivor mode, and the identical curiosity payout will proceed for the lifetime of each holders, and the cash will go to heirs.Contrast this with the EPS pension, the place the corpus can’t be recovered; worse, the payout to the surviving partner will drop by 50% upon the subscriber’s demise.Not opting for the improved EPS pension has one other benefit. There is further liquidity to opt for a pension at a later age. Insurance annuity payouts after 70 are sometimes extra profitable than authorities bond coupon charges. See: I want a pension: Should I purchase an annuity or a govt bond?Our opinion is for these within the highest tax slab, not opting for the improved EPS pension is extra useful. There is a higher corpus to work with to fight inflation by way of a bucket technique, and even when one needs fastened earnings/pension, authorities bonds are extra advantageous.The higher EPS pension possibility may probably profit these in decrease tax slabs, however this should be selected a case-by-case foundation, relying on the person’s circumstances. At the very least, we urge readers to not be in a hurry to opt for the higher EPS pension and evaluate the abovementioned eventualities. Do share this text with your mates utilizing the buttons under. 🔥Enjoy large reductions on our programs and robo-advisory device! 🔥 Use our Robo-advisory Excel Tool for a start-to-finish monetary plan! ⇐ More than 1000 traders and advisors use this!Follow us on Google News.Do you’ve a remark concerning the above article? Reach out to us on Twitter: @freefincal or @pattufreefincalJoin our YouTube Community and discover greater than 1000 movies!Have a query? 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