Understanding EPS Contributions: A Guide
When it comes to managing retirement savings, understanding the Employees’ Pension Scheme (EPS) is crucial. Unfortunately, many individuals overlook the importance of properly managing their EPS contributions, leading to frustration and financial loss, as was the case for Mr. A. Below, we explore how EPS works, its key aspects, and tips for ensuring a smooth transition between jobs.
The Basics of EPS Contributions
How EPS Works
Employers contribute a total of 12% of an employee’s basic salary to the provident fund system. This amount is divided as follows:
- 8.33% goes to the EPS.
- 3.67% is directed to the Employee Provident Fund (EPF).
It’s worth noting that, regardless of whether an employer is categorized as exempt (managing the PF through a private trust) or non-exempt (managed directly by the Employees’ Provident Fund Organisation or EPFO), all pension contributions are funneled to the EPFO.
Mr. A’s Experience
Mr. A worked for three different employers. The first two were exempt and only sent EPS contributions to the EPFO, while his third employer was non-exempt, sending both PF and EPS contributions directly to the EPFO. This distinction became important when he tried to withdraw his funds after transitioning to freelancing.
The Significance of Merging EPS Accounts
Potential Issues After Job Changes
After leaving his third job, Mr. A realized that although he was qualified for a full withdrawal after completing the required 60-month service, his EPS accounts from previous employers needed to be merged first. He was unaware that his earlier pension contributions remained unlinked and were still held by the EPFO.
The process for withdrawing funds can be complicated. If any previous EPS account is linked to another member ID and hasn’t been transferred, your request can be denied. The necessary step is to transfer EPS service contributions systematically from the first employer to the last.
Steps Needed for Withdrawals
To handle his situation, Mr. A must fill out Form 13 to transfer his EPS account contributions from his earlier employers into his current account. Once the services are merged, he will be eligible for withdrawal.
What Happens If You Exceed 10 Years of Service?
If you accumulate over 10 years in the EPS, the ability to withdraw your pension contributions changes. Instead of a withdrawal, you must apply for a pension scheme certificate, which serves as documentation of your pensionable years.
Understanding the Scheme Certificate
Employees with more than 10 years in the EPS can request a scheme certificate even after withdrawing from the PF. This certificate is quite beneficial, especially for those considering returning to the job market after a break, as it allows years of service to be counted towards their total at retirement.
Proper Transitioning of EPS Accounts
To avoid complications and ensure that your benefits remain intact, it’s crucial to transfer your EPF and EPS accounts when you switch jobs.
Recommended Actions During Job Changes
- Use Form 13 to file for an online EPF/EPS transfer whenever you change jobs.
- Directly merge past EPS accumulations with your latest employer to ensure your eligibility remains updated in the EPFO records.
Options for Self-Employed Individuals
If you leave a full-time job to become self-employed, you have two main choices:
- Withdraw your EPF and obtain a scheme certificate for EPS.
- Keep your EPF account active.
Keeping your EPF active means it will continue to accumulate interest until the designated retirement age, but you should be aware that any interest earned after three years of unemployment will be taxable.
Regulatory Updates and Compliance
Change in EPS Regulations
Since September 1, 2014, there has been a significant change regarding EPS contributions for new employees. Those who joined after this date and earn a basic salary over ₹15,000 monthly do not contribute to EPS, and 100% of the employer’s contribution goes to EPF.
For existing employees, it’s crucial to ensure that their EPS contributions remain continuous and accurately managed. If any mistakes arise from the employer’s side, it could prevent fund transfers and create withdrawal problems.
Proactive Measures for Employees
To maintain smooth transfers and withdrawals, employees should:
- Link their Universal Account Number (UAN) with Aadhaar.
- Complete their KYC details.
- Check their passbooks regularly to track EPS contributions.
Staying proactive about EPS compliance will significantly safeguard your long-term pension benefits, ensuring that you don’t face unexpected challenges during withdrawals. By understanding the intricacies of EPS and following the tips outlined, you can avoid common pitfalls associated with your retirement savings.
