Employee Provident Fund Organisation (EPFO) owned by the Central Government of India has introduced and manages Employee Provident Fund (EPF) and Employee Pension Scheme (EPS).
EPF & EPS are savings schemes for all salaried employees working in companies and factories that are a member of EPFO. Though both are savings schemes created with the motive of taking care of financial needs of the employee post retirement, EPF & EPS work differently. Here is the overview and the differences between EPF and EPS.
Employee Provident Fund (EPF)
Employer and employee contribute towards the PF account of the employee every month. The amount is pre-determined by calculating 12% of basic salary and Dearness Allowance (DA). Employee contributes 12% of the salary component every month towards PF and employer contributes 3.67% towards PF and the remaining 8.33% is contributed towards EPS. Total monthly contribution towards PF account of an employee is 12% from employee and 3.67% from employer.
EPFO offers an interest rate of 8.5% p.a. on the balance in PF account. Employee can withdraw certain amounts for certain reasons specified by the EPFO. Withdrawal and advances on PF are subject to fulfilling the eligibility criteria pertaining to the reason for withdrawal.
You can read all about reasons for which you can file claims to withdraw funds from your PF account and the eligibility criteria for each here – Should I close my PF account?
EPFO allots employees Universal Account Number (UAN) which is an umbrella for all the member logins created for an employee. This helps employees access all the information at one place regardless of the number of employers one has worked with. One UAN is allotted per PF member on the PF account and the PF account number and UAN remain the same through the lifetime of a PF member. In case a member has more than one UAN since it was created by previous employer and current employer, the member can transfer funds from previous UAN to current UAN and close the previous UAN.
Advantages of EPF
- Advances can be claimed in times of emergency
- Post-retirement life is financially secure
- Small amount is contributed every month and it compounds to a large sum over a period of time
- High interest rate of 8.5% p.a. compounds interest amount over the years
- Income tax rebate up to Rs.1,50,000 p.a. for the contribution towards PF
Employee Pension Scheme (EPS)
Any employee who has an EPF account will also have an EPS account linked to it. Only employer contributes towards EPS of the employee every month. Employee does not contribute towards this scheme. 8.33% of basic salary + Dearness Allowance (DA) of the employee is contributed every month by the employer towards EPS of the employee.
The maximum amount that can be contributed towards EPS per employee is Rs.1,250 per month. If the basic salary + DA of the employee is high and it exceeds the contribution of Rs.1,250 per month towards EPS, the remaining amount of 8.33% is deposited into the PF account of the employee.
EPFO does not offer interest on EPS as this is a pension scheme. However, if the employee declares to EPS that he/she would like to receive pension after 60 years of age, EPFO offers 4% interest on the EPS funds. Employee who has attained 58 years of age and has minimum employment of 10 years with the EPS account is eligible to receive retirement funds from EPS.
Benefits of EPS
- EPS member can receive pension life long after the age of 58 years.
- After the death of the EPS member, immediate family members mentioned as nominees in the EPS account will continue to receive pension.
- EPS member can withdraw full funds from his/her EPS account in case of continuous employment of 2 months.
Difference between EPS and EPF
| Characteristics | EPF | EPS |
| Employer contribution | 3.67% per month of basic + DA | 8.33% per month of basic + DA |
| Employee contribution | 12% per month of basic + DA | Nil |
| Limit on deposit | Amount is pre-determined by the contribution formula. There is no standard limit that applies to all employees. | Rs.1,250 per month |
| Minimum age of employee to file claims or withdraw funds | Minimum age limit is based on the reason for which claim is filed. Employee has to fulfill the eligibility criteria to apply for claim. | To withdraw EPS scheme before employee attains 58 years of age: 10 years of employment should be complete To apply for early pension: employee must be 50 years of age Regular pension starts at the age of 58 years of the employee |
| Interest rate | 8.5% p.a. for the year 2021-2022 | No interest for early pension and regular pension. If pension is requested to start after 60 years of age, interest of 4% p.a. is offered. |