Proposed EPS changes may not improve your pension
Benefit of additional contribution gets diluted by proposed changes in pension calculation norm.
The Employee Pension Scheme (EPS) is likely to take the path suggested by the K C Mishra Committee set up in 2009. The key proposals to be discussed at the February 5, 2014, meeting of the Central Board of Trustee (CBT), are increasing the retirement age of organized sector workers to 60 years from 58 years presently.If the move is approved an employee can contribute to the pension corpus for two additional years. There are said to be 44 lakh pensioners in the country, of which 27 lakh receive a pension below Rs1,000.
For Raju who has been contributing Rs541 per month to EPS since 2001, an additional two year of investment would mean a pension kitty heavier by Rs12,984. If he starts drawing pension from 2035, he would get Rs3,435 as pension though EPS. “A higher pensionable corpus is always in the interest of the employee, especially during the last two years as the packages tend to be highest during the lifetime,” says Suresh Sadagopan, founder of Ladder7 Financial Advisories.
Even though this move of increasing the retirement age by two years helps build a better kitty the benefit would be subdued if the other two proposals come into effect.
Presently a person who completes 20 years in service gets a bonus of two years, while calculating the pension amount. So even if Raju completes 35 years in service, he won’t be able to get a pension equivalent to 37 years of service as the bonus clause would be done away with.
Another dampener is that the Employees’ Provident Fund Organisation’s decision making arm CBT plans to calculate pension based on the average basic pay of last 60 months of service, instead of the present norm of average of last 12 months basic pay. The average of 60 months’ salary would be lower than the past 12 months’ salary and hence the pension amount would tend to go down.
“The moves proposed would balance each other out,” adds Sadagopan. All in all one can say that the CBT would give with one hand and snatch away with the other.
All eyes are now on whether the maximum wage ceiling is improved to Rs15,000 per month from the present cap of Rs6,500 per month as this modification could enhance your pension by a sizeable amount. This would help Raju to more than double his pension to Rs7,928 per month as against Rs3,436 per month he can draw presently.
|Number of contributory years||35||37||–|
|Pension drawn (per month)||Rs3,250||Rs3,436||Rs186|
|Pension if max. wage cap changes||–||Rs7,928||–|
*Considering a contribution of Rs 541 per month to EPS