The Employees’ Provident Fund (EPF) is one of the most impactful social security schemes in India. Launched in 1952, it provides assured returns and a safety cover for all employees working in any organisation that employs 20 or more persons throughout India.
Contribution from employee, employer
The EPF account of an employee gets a contribution of 12% of the Basic + DA of his/her salary. A matching amount is also provided by the employer. However, the entire amount deducted from the employee’s salary is deposited in the EPF account, while only 3.67% of the portion deducted from employer is put in the same account. The rest (12-3.67 = 8.33%) goes into a pension account that the employee would get after he/she retires from service.
Calculation for Rs 10,000
Let’s take an example of a young person getting a Basic Salary of Rs 10,000. Let us also assume that the increment is low 5% — a rate that can barely keep pace with retail inflation. This is the average increment for the entire service period.
Even in such a scenario, EPF would accumulate for our candidate nothing less than Rs 58,56,851 or Rs 58.56 lakh. This amount will be payable when he/she turns 58. Moreover, the employee will also start getting a monthly pension, though it will not be a big amount.
Calculation for Rs 15,000
Now let’s consider a situation where the employee gets a basic salary of Rs 15,000. The average annual rate of salary increment remains the same – 5%. the amount increases significantly. The amount jumps to Rs 95,78,338 or Rs 95.78 lakh. Besides, this lump sum, the employee will also get a pension every month.
Calculation for Rs 20,000
Now let’s turn to a situation where the employee gets a basic salary of Rs 20,000 per month. In this case, the employee will be entitled to a payment of Rs 135,68,643 or Rs 1.35 crore. Like the other two instances discussed above, he/she will also get a pension every month.
The other thing to remember is that the amount of lump sum payment and monthly pension will both depend on the rate of interest the EPRO fixes every year. For FY24, it was fixed at 8.25%. For our calculation, we have assumed it will remain 8.25% during the entire period.
The Employees’ Provident Fund silently creates a significant pool of money that helps an employee in the post-retirement years of his/her life. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
