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What's the Difference Between EPF and EPS?

Both EPS and EPF are prominent serving schemes for salaried individuals across India. EPS is more about pension benefits, and EPF is suitable for making a substantial retirement corpus.

All working professionals require a clear understanding of the difference between EPF and EPS. Both are pension schemes offered by the government for salaried individuals. There are minute differences between EPF and EPS  that everyone needs to understand before enrollment. Both schemes have several benefits and are quite popular for long-term investment. The most notable aspect of  EPF and EPS is that one gets a guarantee of return on investment.

Let’s learn more about these schemes and the differences between them!

What is EPS, and How Does it Work?

EPS, or Employee Pension Scheme, is a popular employee provident fund organisation (EPFO) offering. It provides pensions for eligible employees. This particular scheme is available for individuals with salaries of ₹15,000 or less. The primary aim of EPS is to provide financial security during the retirement period of the individuals.
 

Under the EPS, the employer contributes around 8.33% of the salary to the EPS account of the employee. During the service period of the employee, the amount accumulates. Post-retirement pension payment comes from the accumulated balance.
 

The pension is paid only after the employee reaches the age of 58. However, an employee is eligible to avail of an early pension after reaching 50 years. Employees who do not complete ten years of service or are less than 50 years of age can also withdraw the lump sum that has been accumulated.

The pension can be availed throughout the employee's lifetime. In the event of death, the pension payment will go to the nominee. The pension is based on the length of service and the average monthly payment.

What is EPF, and How Does it Work?

EPF is a retirement benefit scheme managed by the EPFO. The scheme allows individuals to save up a decent corpus during their service period. The employer and the employee contribute about 12% of the dearness allowance (DA) and basic salary. Of this, only 3.67% goes to the employer's share of EPF. The remaining amount goes towards EPS.

Employees can withdraw a part of the EPF balance under emergency conditions.  Employees who remain unemployed for two months or more can also withdraw the amount. The available EPF balance is eligible alao for transfer from one account to another incase of a job switch.

After enrollment in the EPF scheme, the individual will get an Universal Account Number from the EPFO. The UAN will remain the same throughout the service period of an individual. Besides, they get access to various other information regarding EPD using this number.

Benefits of the EPF Scheme

EPF continues to be a popular and beneficial saving scheme provided by the government. Following is a list the key advantages:
 

Increase in Capital

EPF scheme provides capital appreciation as the government sets the interest. Besides, the contributions to the account are added every month.
 

Emergency Fund

The balance in the EPF account is usable under certain circumstances, like financial or other emergencies. The account holder can therefore use a part of the fund for their emergencies.
 

Retirement Corpus

EPF helps to build a retirement corpus. This gives the account holder a sense of independence and financial security.
 

Death Benefit

In the event of the death of an employee, the nominee receives that entire EPF balance. It offers much-needed financial assistance to the family during challenging times.
 

Unemployment

Employees under the EPF scheme can get benefits during periods of unemployment. During these times, an individual can withdraw 75% of the EPF balance. The remaining 25% is accessible after two months of unemployment.
 

Easily Accessible

With a Universal Account Number (UAN), individuals can easily access the details of their EPF account. The EPF member portal is streamlined making it easier to access details online.

Benefits of the EPS Scheme  

Employee pension schemes provide several benefits for enrolled members. The scheme offers security after retirement, complete disability, or unfortunate death. EPS can become a critical support for the employee and their family.
 

Pension After Retirement

EPS members receive pension benefits upon reaching retirement age of 58. However, it only applies after the employee completes ten years of service. One must fill out the form 10D using the EPS certificate for monthly pensions.
 

Pension After Early Retirement

If a member cannot serve for a full 10 years before turning 58 years old, they can withdraw the entire sum once they reach the age of 58 by submitting Form 10C.

Pension for Disabled People During the Service Period

If an EPFO member suffers with a permanent disability, they get a monthly pension before completing the service period. The employed must deposit funds in the account for at least one month to be eligible for a pension.
 

Pension for Nominee in the Event of Employee Death

In the event of the death of a member, the family gets pension benefits. Similarly, if an employee completes ten years of service and passes away before age 58. The family gets pension benefits from the EPS scheme.

Breakdown of EPF Calculation
 

Let us consider the basic salary and DA of an employee is ₹25,000.
 

Employee Contribution Towards EPF

12%  of ₹25,000 = ₹3000
 

Employer Contribution Towards EPF

3.67% of ₹25,000 = ₹917.50
 

Employer's Contribution Towards EPS

8.33% of ₹25,000 = ₹2082.5
 

Employer's Contribution Towards EPF on ₹15,000

3.67% of ₹15,000 = ₹1249.5
 

Excess Contribution

(₹2082.5 - ₹1249.5) = ₹833
 

Total Monthly Contribution

917.5 + 833 = ₹1750.5
 

Total Contribution Per Month for EPF

₹4750

Breakdown of EPS Calculation  

Let us consider the basic salary and DA of an employee is ₹25,000.
 

Employer's Contribution to EPS

8.33% of ₹25,000= ₹2082.5

Since the maximum amount is ₹1250, the balance goes to EPF contribution.

Conclusion

The difference between EPF and EPS is that in EPF, both employer and employee contribute to the scheme. Whereas in EPS, only the employer contributes. Both schemes focus on the welfare of employees but have subtle differences. Salaried individuals should know both if they wish to secure their retirement years. EPF helps in building a lump sum amount during the service period. EPS provides regular income to the employee post-retirement.

Peaceful Retirement Awaits: Discover Your Perfect Pension Plan

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

Who is eligible to become a nominee of the EPS account?

EPS account holders can register one or more family members as nominees of the EPS scheme.

Is the  EPF and EPS  number the same?

The number for EPF and EPS is different. Even through the UAN is the same, each account number differs.

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed1 issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.