Absolute beginner’s guide to Provident Fund and Pension Scheme

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Last updated on July 26th, 2019 at 07:02 pm

Employee Provident Fund (EPF) and Employee Pension Scheme (EPS) are both govt schemes meant for your retirement in which employees must contribute a certain percentage of their monthly salary towards EPF and EPS. This money can be withdrawn with interest at the time of retirement or before retirement under certain circumstances, which we will also discuss in this post.

There are many posts on the internet talking about these schemes. This post introduces these schemes in the simplest way as to help a student who is just entering the corporate world.

Under the PF scheme there are in fact two accounts maintained, PF (Provident fund) and PS (Pension scheme). If take a look at your PF passbook, you’d find your money being divided and deposited into these two accounts.

How much money is deducted towards EPS and EPF?

A contribution equal to 24% of your basic pay + DA should be contributed towards the EPF and EPS.

Of this, half the contribution would come from the employees side (12%) and the other half (12%) should come from the employer’s side; ie, you pay 12% and your company pays the other 12%. When you withdraw, you can have all the 24% to yourself though.

The 12% you contribute goes straight to your PF account. The employer’s 12% gets divided into a lot of accounts.

EPF = 3.67% EPS = 8.33% = 12%

Some companies make you pay the entire 24%. When the contribution is made to your PF account, 12% goes from your salary directly to your PF account, the other 12% goes to the company’s account and then to your PF account.

So on papers, 12% would come from your side and the other 12% has come from your company’s side. The company reimburses themselves by deducting of their share 12% from your salary. This essentially means, you end up paying the whole 24%.

Companies may not directly reveal it to you that you’ll pay their share as well. Study carefully your salary break before you sign the offer letter. If “Employer’s share of PF” is mentioned in the salary break up, be advised that you’ll be contributing all the 24% of your basic pay towards your PF.

Can you opt out of EPF and EPS?

Yes, you can opt out of the PF and PS scheme upon certain conditions, but it is not recommended to opt out as it serves for the rainy day.

  1. If an employee has a basic pay of Rs 15,000, can opt out of PF in the beginning of joining the organization.
  2. No employee can opt out of PF while during the tenure of an employment in an organization even if the basic salary has increased to Rs 15,000, during the term of employment.

When can I withdraw my EPF and EPS?

  1. The logic of EPF and EPS is to be a retirement plan. When you attain the age of 58, called retirement, you can withdraw the entire amount with interest.
  2. You can also withdraw your PF if you are unemployed for two months. In other words, two months after you quit from your current organization. (There should be no deposits in your PF account for two months, and this is how the PF office verifies whether you are indeed unemployed for two months. If you join a new organization that credits to your PF account within two months of quitting your previous organization, you won’t be able to withdraw your PF).
  3. While you are still working, you can partially withdraw your PF and PS for,
    1. Your or your dependent’s marriage.
    2. Buying a dwelling house/flat*.
    3. Illness of certain types
    4. Natural calamities
    5. If electricity supply is cut
    6. For the of any handicap equipment (a wheel chair etc).
    7. Constructing a dwelling house (including the cost for the site)*
    8. Payment of your life insurance policies. In this case, it’ll be a direct transfer from your PF account to your insurance account. There will be no withdrawals.
    9. The repayments of loan (principle and interest) taken to buy or construct a dwelling house.*
A screenshot form the PF withdrawal page
Here is a screenshot of the PF withdrawal page showing the list of reasons for which you can withdraw PF.

What is UAN?

The norm was that each time an employee joins a new job, a new PF account was created. To link all these PF accounts and with things going digital, there was a need for a unique number to an employee to manage his/her accounts and for all the PF related correspondences. Universal Account Number, abbreviated as UAN is that unique number. You can log in to the PF website with this number, where all your PF accounts are listed. You can carry our various activities through the portal with your UAN number, some of which are,

  • Link/merge all your PF accounts
  • Transfer your old PF account to your new organization instead of creating a new one
  • Withdraw your PF
  • View the account passbook to check your PF and PS balance

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