Kolkata: Employees’ Provident Fund, or EPF, is probably the earliest of social security schemes that were designed for employees of a newly-Independent India. It was inaugurated in 1952 through an Act of the Parliament and since then has provided some sort of financial security to generations of employees. The EPFO (Employees Provident Fund Organisation) not only maintains EPF which pays a lump sum amount to an employee at retirement but also maintains a fund for pension to workers and/or their families (after their demise).
The contributions to EPF are taken both from the employee and from the employer. A sum of money, which is 12% of the basic salary of an employee is taken in the EPF account every month. Another 3.67% is contributed by the employer which also goes into the EPF account — the rest 8.33% (12 – 8.33 = 3.67) goes into the pension (EPS). Let’s see what is the amount of the lump sum payment that an employee will get if he/she works till the age of 58 with an initial salary of Rs 25,000.
The EPF calculator
EPF calculators help an individual to calculate how much money is accumulated in the EPF account when an employee is about to retire. Let’s assume an individual begins working at the age of 25 years. The initial basic salary of the employee is Rs 25,000 per month. Let’s also make a few other assumptions which are required to make the calculation with EPF calculator. These assumptions are:
- Age of retirement: 58 years
- Average annual increment expected: 10%
- Employee contribution to EPF: 12%
- Employer’s contribution to EPF: 3.67%
- Rate of interest: 8.25%
With the above assumptions, the final amount in the EPF account will be Rs 3,83,58,972 or Rs 3.83 crore. Now check what will be the final accumulation if the rate of increment is lowered to 7% and the rate of interest to 8%. In this scenario, the assumptions become:
- Age of retirement: 58 years
- Average annual increment expected: 7%
- Employee contribution to EPF: 12%
- Employer’s contribution to EPF: 3.67%
- Rate of interest: 8.00%
In this situation, the individual would accumulate Rs 2,27,40,154 or Rs 2.27 crore by the time he/she retires at the age of 58. Remember the pension (EPS) will also begin flowing into the employee’s account apart from this one-time lump sum payment. The point to note is that the rate of interest is fixed once every year and the EPFO announces this rate. In FY24, this rate of interest was 8.25%.
The Employees’ Provident Fund is one of the most impactful social security schemes that employees of the formal sector in India have. In fact, if one works uninterruptedly from the twenties to late fifties, it is not difficult to accumulate a significant amount. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
