Types of Retirement Schemes and Their Features

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 Topics to be Covered

Types of Retirement Plans/Schemes in India

 Types of Retirement Schemes in India

Employment Based Pension

Insurance Based Pension Plans Govt. Launched for Social
Plans
Security

1. Defined benefit Plan 1. Deferred Annuity Plan 1. EPF

2. Defined Contribution Plan 2. Immediate Annuity Plan 2. NPS, APY etc.
3. Hybrid Plan 3. Pension Plan with or 3. PPF
without Life Cover 4. Old Pension Scheme (GPF)

Lets discuss about Govt. Launched Plans for Social Security

 Types of Retirement Schemes in India

EPF – Employee Provident Fund

Acts Governing these Schemes

EPF Scheme 1952

I. Employees’ Provident Fund Scheme, 1952
Pension Scheme 1995 II. Employees’ Pension Scheme, 1995
(EPS) III. Employees’ Deposit Linked Insurance
Scheme, 1976
Insurance Scheme 1976
EPFO

Let us discuss EPS Scheme now

 Types of Retirement Schemes in India

EPS 1995

1. Along with the EPF scheme, the EPS scheme is also

offered to employees

2. Of the 12% of the employer’s contribution, 8.33% of

the salary is directed to the EPS account with max
of 1250 and rest into EPF

3. EPS is also governed by EPFO

4. Only employer contributes and not the employee

 Types of Retirement Schemes in India

EPS 1995 Since EPS is administered with EPF so the basic

conditions to be part of EPS are same as EPF
 Types of Retirement Schemes in India

EPS 1995

No interest income accumulates on the scheme

 Types of Retirement Schemes in India

EPS 1995

Basic Objective
The scheme makes provisions for employees working in the organized sector for a pension after their retirement at
the age of 58 years

Pension can also be obtained at the age of 50 years at reduced rate of 4% for each year. In case the member decides
to withdraw the monthly reduced pension at the age of 56 years, he will get the pension at a rate of 92% (100% – 2
x4) of the original pension amount

Pension can also be deferred for two years (up to 60 years of age) after which he will get a pension at an additional
rate of 4% for each year

Pension is paid throughout the employee’s lifetime. On the death of the employee, the pension continues to be paid
to the nominee (nominee can only be Spouse or children)

60
Formula for calculating Pension

Avg. Salary up to max of 15000

Types of Retirement Schemes in India

Example
Ram worked for 40 years and retired at the age of 58. His
Average Basic Salary for past 5 years at Retirement was
40,000. What is the pension that he will get?

Amount = (15000 * 40) / 70

= 8571 Approx.
Types of Retirement Schemes in India

Is there any Min amount on Pension under EPS?

Yes there is

Min = 1000
Types of Retirement Schemes in India

If you want money in one go rather than

pension

One can also go for lump sump withdrawal

at attaining the age of 58 instead of opting
for pension
 Types of Retirement Schemes in India

EPS 1995

Conditions to Avail Pension

Pension is only available if you have
completed min 10 years of Service (need not
be continuous)

If you have done service for less than 10 years

then you can withdraw the amount by filling
Form 10 C

Note: If you are 58 years old but you have not

done service of 10 years then also you will
not be eligible for Pension, you need to
withdraw money from EPS
 Types of Retirement Schemes in India

EPS 1995

Lump Sum withdrawals

1. At attaining the age of 58
2. Leaving Service before completing 10 years of service
 Types of Retirement Schemes in India

EPS 1995

Taxation in EPS
1. Lump Sump Amount is Taxable
2. Pension is also Taxable
 Types of Retirement Schemes in India

EPS 1995

Pension Benefits under Employees’ Pension Scheme (EPS)

1. Pension benefits after attaining age of 58 or reduced pension starting at 50 or a higher pension starting at 60.

2. Lump sump Withdrawals

I. Not completing 10 years in service
II. Opting of Lump sump instead of pension after attaining age of 58

3. A member of the EPFO, who becomes disabled totally and permanently, is entitled to a monthly pension
irrespective of the fact that he has not served the pensionable service period of 10 years (Min 250/Month)

4. Pension for the Family on the Death of the Member

I. While in Service though not completed 10 years of service
 Types of Retirement Schemes in India

EPS 1995

Types of Pension to Family under EPS

1. Widow Pension: The pension amount will be payable until the death of the widow or her remarriage. In case
of more than one widow, the pension amount will be payable to the eldest widow. (min 1000/month)

2. Child Pension: This is in addition to widow pension. (Min 250/Month)

I. It’s a monthly children pension is applicable for the surviving children in the family.
II. The monthly pension will be paid till the child attains the age of 25 years.
III. The amount payable is 25% of the widow pension and can be paid to a maximum of two children.

3. Orphan Pension: (Min of 750/month)

I. In case the member dies and has no surviving widow, his children will be entitled to get the monthly
orphan pension of 75% of the value of monthly widow pension
II. Applicable for two oldest surviving children uptil 25 years of age

Area of Difference
Employee’s contribution
Employer’s contribution
Interest on investment
Maximum contribution
Tax
Difference between EPF and EPS
EPF EPS
12% of basic salary and dearness allowance Nil
3.67% of basic salary and dearness allowance paid 8.33% of the basic salary and dearness
to the employee allowance paid to the employee
Interest is calculated every month and paid at the No interest is paid on the EPS account
end of the FY. The interest rates are fixed and
reviewed by the government regularly.
The contribution is 12% on salary. The Contribution is limited to 8.33% on
salary up to Rs.15,000, i.e. Rs. 1250
Interest received on EPF account is exempt except Pension and lump-sum amount both are
if it is withdrawn before 5 years of continuous taxable when received
service
Also, if the contribution is more than Rs.2.5 lakh in
any year. Then tax is payable on excess amounts.
 Difference between EPF and EPS

Area of Difference EPF EPS

Premature Withdrawal Employees can withdraw 75% of their
EPF corpus after remaining unemployed An early pension can be received after 50
for one month and balance 25% he is years.
out of employment for 60 straight
days or more A lump-sum amount can be withdrawn if
58 years of age is attained or service is
Advances can be taken for marriage or completed in less than 10 years, whichever
Post-Matriculation of children, housing, is earlier.
Medical Treatment
80C deduction Deduction on up to Rs.1.5 lakh of employee’s No deduction allowed as employee
contribution contribution is Nil
 Concept Check

Who contributes to EPS scheme?

1. Employee
2. Employer
3. Both employee and employer
4. NOTA

Ans: Option 2

Who decides interest of EPF and EPS schemes respectively?

1. EPFO, no interest is applicable

2. Ministry of Labor and Employment, Ministry of Finance
3. Ministry of Finance, Ministry of Labor and Employment
4. EPFO, Ministry of Labor and Employment

Ans: Option 1
 Concept Check

Ram worked for 40 years and retired at the age of 58. His Average Basic Salary for past 5 years at Retirement was 20,000
per month. What is the pension that he will get under EPS scheme?

1. 3501
2. 5571
3. 7542
4. 8571

Ans: Option 4 { (15000*40)/70 = 8571 approx. }

Ram worked for 40 years and retired at the age of 55. His Average Basic Salary for past 5 years at Retirement was 20,000
per month. What is the pension that he will get under EPS scheme if he opts for pension at 55?

1. 3501
2. 5571
3. 7542
4. 8571

Ans: Option 3 { (15000*40)/70 = 8571 approx. } but since retiring 3 years before 58, so it would be reduced by 12%,
hence 88% of 8571 = 7542
 Concept Check

Min Service period required to be eligible for pension under EPS scheme?

1. 5 years
2. 10 years
3. 15 years
4. 20 years

Ans: Option 2

Pension under EPS scheme is

1. Tax Exempted
2. Taxable
3. Tax exempted only if you retire after service period of 20 years
4. Taxable if you retire after service period of less than 15 years

Ans: Option 2
 Concept Check

Min Service period required to be eligible for pension is 10 years under EPS scheme. Exception to this is?

1. Pension on becoming disable even though not completed 10 years of service

2. Pension to family members in event of death even though not completed 10 years of service
3. Both 1 and 2
4. Neither 1 nor 2

Ans: Option 3

Pension under EPS scheme to widow is given till the time

1. Children starts earning
2. Children attains age of 25
3. She dies or remarries
4. She dies

Ans: Option 3
 Concept Check

True of False/ Fill in the blanks

Pension under EPS scheme is payable to eldest widow True

Child pension is given to max of ____children and is ___% of widow pension till child attains age of _____ years
2,25,25
 Types of Retirement Schemes in India

EPF – Employee Provident Fund

Acts Governing these Schemes

EPF Scheme 1952

I. Employees’ Provident Fund Scheme, 1952
II. Employees’ Pension Scheme, 1995
Pension Scheme 1995 (EPS)
III. Employees’ Deposit Linked Insurance
Scheme, 1976
Insurance Scheme 1976 (EDLI)

EPFO

Let us discuss Insurance Scheme now

 Types of Retirement Schemes in India

EDLI - 1976

This scheme works in combination with EPF and EPS

Since EDLI is administered with EPF so the basic conditions to be part of EPS are same as EPF
 Types of Retirement Schemes in India

EDLI - 1976

Contribution

Max. Capped at Rs. 75

0.5% of Max basic + DA
capped at 15000 = 75
 Types of Retirement Schemes in India

EDLI - 1976

Basic Objective
Employees Deposit Linked Insurance Scheme or EDLI is an insurance cover provided by the EPFO

The registered nominee receives a lump-sum payment in the event of the death of the person insured, during the period
of the service. The nominee has to file for claim using form 5 IF

The deceased member must have been in employment for a continuous period of over twelve months, irrespective of
whether the member served the same employer or switched jobs during the twelve months preceding his or her death.

The pay-out to be awarded will be calculated as under:

Average monthly (basic + DA) of preceding 12 months (Capped at 15000) x 35
+
50% of Average PF balance during last 12 months (Capped at 1,75000)

Max. Permissible Benefit is 700000 Min. Permissible Benefit is 250000

Types of Retirement Schemes in India

Example
Suppose Raghu was earning an average
monthly wage worth Rs 18,000 in the 12
months preceding his death and the average
PF balance in this period is Rs 4 lakh, then
calculate the benefit under EDLI

Sol:
The benefit in this case will be Rs 7 lakh

(Rs 15,000 x 35 + Rs 1,75,000).

 Concept Check

Contribution towards EDLI is made by

1. Employee
2. Employer
3. Both employee and employer
4. NOTA

Ans: Option 2

Contribution towards EDLI is _____% of basic pay + DA with a max of ______

1. .5, 150
2. .2, 75
3. .2,100
4. .5,75

Ans: Option 4
 Concept Check

Max and Min permissible benefit under EDLI respectively is

1. 3 lakh, 1 lakh
2. 5 lakh, 3 lakh
3. 7 lakh, 2.5 lakh
4. 9 lakh, 5 lakh

Ans: Option 3

Suppose Raghu was earning an average monthly wage worth Rs 12,000 in the 12 months preceding his
death and the average PF balance in this period is Rs 2 lakh, then calculate the benefit under EDLI

1. 420000
2. 520000
3. 600000
4. 700000

Ans: Option 2
(12000*35 + 50% of 2 lakh) = 420000 + 100000 = 520000
 Types of Retirement Schemes in India

Govt. Launched for Social

Security

1. EPF
NPS and APY we will be discussing in separate chapters
2. NPS, APY etc.
3. PPF
4. Old Pension Scheme (GPF)
 Types of Retirement Schemes in India

Govt. Launched for Social

Security

1. EPF
Lets discuss about PPF – Next Video
2. NPS, APY etc.
3. PPF
4. Old Pension Scheme (GPF)