April 26, 2023

EPF Vs EPS - What is the Difference

The Employee Pension Scheme (EPS) and the Employee Provident Fund (EPF) are two notable savings schemes available to employees in India. Both are developed to provide financial safety and stability to employees in their post-retirement years. However, both EPS and EPF are different. It is essential to understand the difference between EPS and EPF before investing your hard-earned money. This article glances at EPF and EPS to help you understand their key features, benefits and differences.

What is an Employee Provident Fund (EPF)?

Employee Provident Fund (EPF) is a retirement savings scheme mandated by the Indian Government. It is a savings plan where both the employer and worker contribute a percentage of the employee's salary every month, with the contribution rate being set by the government. The contributions made towards an EPF earn interest and accumulate over time. The employee can withdraw the collected corpus at retirement or after specified years in service. EPF also provides life insurance and disability insurance benefits to employees.

What is the Employee Pension Scheme (EPS)?

Employee Pension Scheme (EPS) is another retirement savings scheme mandated by the Indian Government. EPS is a scheme where employees who have completed ten years of service are eligible for pension benefits after retirement. The pension amount is calculated based on the employee's average salary and the number of years of service. The pension amount is paid monthly to the employee and is guaranteed for life. In the occurrence of the employee's death, the pension benefits are transferred to the employee's spouse.

EPS vs. EPF

So, what is the difference between EPF and EPS? While both EPF and EPS are retirement savings schemes, their key features, benefits, and eligibility criteria differ. Let's take a closer look at the differences between EPF and EPS in the following table.
FeatureEPFEPS
EligibilityAll employees earning up to Rs. 15k monthEmployees who have completed ten years of employment
ContributionsEmployee and employer contribute a % of salary every monthEmployer contributes 8.33% of employee's salary to EPS
WithdrawalCan withdraw the collected corpus at retirement or after a specified number of years in serviceCan only withdraw the pension amount after retirement
Pension BenefitsIt does not provide pension benefitsProvides monthly pension benefits to eligible employees
Death BenefitsProvides life insurance and disability insurance benefits to employeesProvides pension benefits to employee's spouse in the event of death

EPF vs EPS: which one to choose?

When choosing between EPF and EPS, it is essential to understand your financial goals and needs. If you are looking for a retirement savings scheme that provides a corpus that can be withdrawn at the time of retirement or after a specified number of years in service, then EPF is the better choice. EPF also provides life insurance and disability insurance benefits to employees, making it a comprehensive savings scheme.
However, if you are looking for a retirement savings scheme that provides monthly pension benefits to eligible employees, then EPS is the better choice. EPS is designed to provide financial security and stability to employees in their post-retirement years, ensuring a regular income stream for life.
It is important to note that EPF and EPS are retirement savings schemes mandated by the Indian government. Both are designed to provide financial security and stability to employees in their post-retirement years. While the schemes differ in their key features, benefits, and eligibility criteria, they are essential savings schemes that can help you achieve your financial goals and ensure a comfortable retirement.

EPF: eligibility and benefits

Here are the eligibility conditions and benefits of EPF:

Eligibility

  • The employee should be contributing towards the EPF scheme.
  • Early retirement is only allowed after 55 years.
  • For employees to access their EPF account, they need to ensure that their functional UAN is connected to their bank details and their PAN and Aadhaar information is updated in the EPF information bank.
  • Withdrawal of the entire EPF corpus is permissible only after the employee reaches retirement age.

Benefits of EPF

  • The EPF Organisation provides a convenient mechanism for addressing compliance and grievances of employees.
  • EPF Organisation is easily accessible online.
  • The settlement claim has been reduced from twenty to three days, per the EPF Organisation.
  • EPF corpus is transferable in the event of changing jobs.
  • It is easy to save with EPF.
  • By making monthly contributions to their EPF account, working professionals can easily save a significant amount of cash for their future.
  • EPF facilitates the promotion and encouragement of all sorts of voluntary compliance.
  • Workers can take out 90% of their EPF corpus one year before retirement.
  • In the event of a lockdown or similar situations such as COVID-19, the EPF Organisation permits withdrawing EPF funds if an employee experiences unemployment due to lockdown or retrenchment before retirement age.
  • According to the latest regulations set by the EPF Organisation, only 75% of the entire EPF savings can be withdrawn after being unemployed for a month or more. At the same time, the remaining balance will be transferred to the new EPF account upon gaining employment.
  • Employees can also withdraw a part of the EPF savings during emergencies.

EPS: eligibility and benefits

Here are the eligibility conditions and benefits of EPS:

Eligibility

  • EPF Organisation membership is compulsory.
  • Minimum of ten years as a worker is required for eligibility.
  • 58 is the age requirement to start receiving pension benefits.
  • Workers are not authorised to contribute to their EPS accounts; only the employer can add to the employee's EPS account.

Benefits of EPS

  • Employees are entitled to receive an added advantage of a pension plan.
  • Employees' Provident Fund Organisation (EPFO) members who meet the eligibility criteria can avail lifelong pension benefits.
  • In the unfortunate event of an employee's sudden demise, their family members are entitled to receive pension benefits.
  • Eligible employees can withdraw their whole stipend fund if they remain jobless for two months.
  • If a worker decides to defer receiving their pension until they reach the age of 60, they will take the retirement with an extra interest of 4%.

Conclusion

While both EPF and EPS are retirement benefit schemes administered by the EPFO, their contribution rates, benefits, and withdrawal rules differ. The EPF is a mandatory contribution by employees and employers, while the EPS is a benefit employers provide to their employees. Understanding the features of each scheme can help employees better plan their retirement years.
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Disclaimer

The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.

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