Seeking higher EPS pension? You have only five more days to apply

Is NPS the best choice for retirement?

The labour ministry and the Employees' Provident Fund Organisation (EPFO) on June 26 decided to extend the deadline to apply for higher pension to July 11.

Employers who need to verify the wage details have been granted another three months to complete the process.

The deadline has been extended thrice so far, so it's unlikely that employees seeking higher pension will get another extension.

Moneycontrol had earlier reported that the deadline could be extended by 15 days.

Currently, 8.33 percent of your provident fund (EPF) contributions made by employers are directed to the Employees’ Pension Scheme (EPS), 1995 to provide for regular pension income post retirement.

However, the basic salary (or wages) considered for the calculation is Rs 15,000, the statutory limit. So, only Rs 1,250 (8.33 percent of Rs 15,000) goes towards EPS, with the balance being directed to your EPF.

If employees were to opt for contribution on their actual basic salary (the component on which EPF contributions are calculated) beyond the Rs 15,000-statutory limit, their pension income is likely to be much higher. An employee is eligible to draw pension after completing at least ten years of service.

Those who wish to draw a higher pension — guaranteed by the EPFO — can choose to make an application until July 11. However, the procedure rolled out by the retirement funds body, after a Supreme Court verdict in November 2022, is riddled with question marks.

Despite several circulars clarifying the process, eligibility criteria and method of computing the higher pension, and introducing an online calculator, many potential applicants have been left groping in the dark. Some took to Twitter to say they had been unable to complete the process and needed clarifications.

Considering the long list of grievances, eligible retirees, employees and employers had called for an extension.

"Employers have the responsibility to provide joint verification, as the employees' EPFO pension records pertain to previous years, which are at least eight years old. A lot of verification needs to be done as these involve financial transactions. So I firmly hope that EPFO would consider reasonable requests from employers to grant them further time to complete the validation process," says Raghunathan KE, Member representing employers, Central Board of Trustees, EPFO.

However, it is best to complete the process as soon as possible instead of waiting until the last minute.

Also read: EPFO members now eligible for higher pension: Should you opt for it?

Who can apply?

Two sets of employees and retirees are eligible to apply for higher pension on actual salary instead of the statutory salary limit of Rs 15,000 (or older limits of Rs 6,500 and Rs 5,000, if applicable) in place since September 1, 2014.

If you retired before September 1, 2014 and had exercised the joint option with your employer to claim higher pension then, you will have to apply for validation of the application. If you retired before this date but had not selected the higher pension option, you will not be eligible to apply now.

If you were in service — that is, if you were a member of EPS — prior to September 1, 2014, continue to be in service, you can make a joint application for a higher pension.

You can visit EPFO’s member portal to complete the application. You will need your UAN (universal account number) or pension payment order (PPO) number, Aadhaar-linked mobile number and past salary records, among other things, to proceed with the application.

Once you submit your information, your employer will have to validate it. An acknowledgement number will be generated for your records.

Next, the EPFO’s field officers will verify the application and pave the way for releasing pension payments whenever due.

However, if you have not been contributing towards your pension on a higher salary all this while, you will have to make good the shortfall retrospectively. The amount will be calculated and will have to be diverted from your provident fund account.

Alternatively, you can pay out of your pocket to settle past dues. In addition, 1.16 percent of your employers’ contribution (in all 9.49 percent instead of 8.33 percent) will also be diverted to EPS.

Also read: Higher pension calculation: EPFO announces formula for calculating higher pension on actual salary

The EPFO’s June 14 circular has linked calculation of pension to the date of commencement of your pension. So, for those who retired — and whose pension payments commenced — before September 1, 2014, the pension will be calculated on the basis of average monthly pay drawn 12 months prior to retirement (or exit from the pension fund).

In the case of those who retired (or whose pension payouts have commenced) or will retire post this date, the pension will be calculated on the basis of average monthly pay during the 60 months immediately preceding the retirement (or exit from the pension fund).

It will be calculated as pension = pensionable salary (average of last 12/60 months’ salary) x number of years of contribution / 70. A change in definition of pensionable salary, which in turn will affect the pension amount, cannot be ruled out in future, say experts, adding another layer of uncertainty to the entire exercise.

Also read: Higher pension calculation: Should you opt for higher pension per EPFO’s new formula? It’s complicated

What are the hiccups I am likely to face?

The biggest stumbling block is the lack of clarity around the amount that will have to be diverted from your provident fund. This is to take care of the shortfall during past years when you did not make contributions towards EPS on your actual salary.

The EPFO has provided an online tool to calculate past dues on its member portal. However, it is no easy task. Many employers and their employees do not have access to their complete basic salary history over the years to be able to make an accurate calculation. Also, the EPFO’s decision will be final.

Also read: Moneycontrol's comprehensive guide to EPF

“The dues calculated through the calculator are a ballpark estimate. Actual dues calculated on the basis of records by the concerned Regional Office of EPFO will be authentic,” according to the EPFO website. Effectively, this means that employees or retirees will have to go ahead and make the application without a complete understanding of the amount they will have to transfer to EPS.

“It is not easy to access past records, as many would not have preserved these documents. It would have been ideal if the EPFO had shared the data beforehand to enable members make a decision, which hinges on the amount that will have to be transferred from their EPF to EPS,” says Pankaj Mathpal, Founder, Optima Money Managers. In fact, those who have already retired and hence, received their PF corpus already will have to arrange for the past dues by dipping into their current savings.

“Besides, employees will have to factor in their current age and health status. What if they do not survive till, say, the age of 75? The spouse will be entitled to 50 percent of pension. The balance corpus directed towards EPS will not be returned to the dependents,” says Kuldip Kumar, independent personal finance expert and Partner, Mainstay Tax Advisors. The PF corpus, on the other hand, is yours for keeps.

Since the EPFO has not clearly indicated whether members will be able to withdraw their applications after EPFO quotes the amount due, they will have to, in a sense, take a leap of faith. They are only allowed to withdraw or re-file until their employers validate their applications.