The legislation on Employees’ Provident Fund or EPF was enacted in 1952. Since then the scheme has been providing social security in the form of post-retirement corpus for employees in any firm that employs 20 or more persons anywhere in India.
Each month 12% of the salary (Basic Salary + Dearness Allowance) from the employee is deducted and put into the EPF account that is maintained by the EPFO (Employees’ Provident Fund Organisation). A matching amount is provided by the employer but 3.67% is put in the EPS account. The other 8.33% goes into a pension account (EPS) which is also maintained and operated by the EPFO.
Contribution for 33 years
Working couples are becoming very common in India, especially in the cities. Let’s consider a couple who start their working career at the age of 25. Both of them retire at the age of 58. They start contributing to the EPF account from the beginning of their career. Therefore, the contribution accumulates for 33 years.
Let’s make another assumption about the interest rate. Every year, the EPFO announces the interest rate that is applicable to the accumulated amount in the EPF account. In FY24 it was fixed at 8.25%. For simplicity of calculation, let’s assume that this rate of interest remains fixed at this rate during their service life.
Accumulation with 5% increment
Using the EPF calculator that is available free online, we find that both the husband and the wife can accumulate an amount of Rs 1,75,58,980 (or Rs 1.75 crore) when they reach the age of 58. Therefore, both of them cumulatively can accumulate Rs 3.51 crore in the EPF account alone. Significantly, both of them will be eligible to a pension too from the age of 58. Another assumption made here has been about the rate of annual increment in salary. This calculation has assumed it at 5%.
Accumulation with 2.5% increment
If the increment is assumed at just 2.5%, the amount in each EPF account will go down to Rs 1,24,50,582 (or Rs 1.24 crore). In this case, the couple will get a total lumpsum of Rs 2.49 crore. This calculation illustrates how rapidly the ammulation falls if the rate of increment in salary declines.
The Employees’ Provident Fund or EPF was designed with the sole objective of providing post-retirement funds for an employee. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
