Retirement planning is an essential financial step that most people face in their lives. The two main programs that form the backbone of the Indian social security system are the EPF (Employees’ Provident Fund) and the EPS (Employees’ Pension Scheme)—both of which have everlasting benefits but have different functions. A clear understanding of the working of these schemes will enable the selection of options that suit best your retirement objectives.
What Is EPF?
The Employer Provident Fund is a savings scheme to which both the employee and the employer contribute 12% of the employee’s basic salary along with dearness allowance. The whole employee’s contribution goes into EPF, and 8.33% of the employer’s contribution is diverted to EPS (if eligible). EPF creates a corpus for retirement which can be accessed after 58 years of age or during the period of unemployment.
Key Benefits of EPF:
- Lump-sum at retirement
- Tax-free interest and maturity
- Partial withdrawals in emergencies
What Is EPS?
Employees’ Pension Scheme is a pension plan that grants income monthly after the retirement period. Only employees who earn ₹15,000/month or less can avail of this scheme, and it is only the employer’s contribution (8.33% of salary). In order to be eligible, a person must have worked for 10 years or more. The pension payments start at the age of 58 and continue for the rest of the lifetime.
Key Benefits of EPS:
- Lifetime pension after retirement
- Family pension for dependents
- Employee contribution not required
EPF vs EPS Comparison Table
| Feature | EPF | EPS |
|---|---|---|
| Type | Savings Scheme | Pension Scheme |
| Contribution | Employee + Employer | Employer only (8.33%) |
| Eligibility | All salaried employees | Salary ≤ ₹15,000/month + 10 yrs |
| Withdrawal | Lump sum at retirement | Monthly pension after 58 |
| Tax Benefits | Tax-free returns | Pension taxable |
| Flexibility | Partial withdrawals allowed | Fixed pension formula |
Final Thoughts
If you want to receive your entire retirement fund in one go, then EPF would be the perfect choice. On the other hand, if you prefer a steady income every month, then EPS is the better option, assuming you qualify. Most workers are benefitted by both since EPS gets automatically included with EPF for the salaries eligible under it. For a better retirement plan, mix EPF with other pension schemes like NPS or PPF.
