Good cheer for pensioners in retirement

By September 12, 2019 Money Matters

If you are a pensioner, or you have such pensioners in the family, under the Employees’ Pension Scheme (EPS) 1995 this should cheer you up. Many pensioners would have actually commuted a part of their pension. But this positive move by the CBT of the EPF, should be cheered by lakhs of pensioners. Check out the details as detailed by the author in case you haven’t caught up with the details yet. Team RetyrSmart

Good cheer for pensioners in retirement

CBT Meeting on Pension:

There is good news for the pensioners of the Employees’ Pension Scheme (EPS) 1995. The Central Board of Trustees (CBT) of the Employee Provident Fund has approved a proposal for the restoration of commuted value of the pension to the Pensioners after 15 years of drawing commutation under the EPS 1995 scheme. The move coming out of CBT meeting on pension is expected to benefit nearly 6.3 lakh pensioners in their retirement.

The new rule

Essentially, on retirement, if the employee opts for commutation of pension, a portion is paid as a lump sum to the pensioner while on the balance the pension begins. In simple terms, commutation means a lump sum payment in lieu of periodic payments of pension. In such a case, the amount of pension will be lower than the amount of pension without any commutation. For example, if the monthly pension is arrived at Rs 35,000 without commutation and if the employee goes for a certain commuted value, the pension gets reduced to say Rs 29,000. The amendment seeks to restore the original amount of pension after 15 years equal to the same amount as it would have been without commutation.

How it impacts

If the employee opts for the commuted portion of pension, then the same is required to be reduced from the pension. The move will help pensioners make an informed decision whether to go for a lower pension amount now as a higher amount will get restored later on after 15 years. One also needs to factor in the impact of inflation while deciding between the two. Commutation may still appear to be a better option for those who are in a position to deploy the funds on their own for much better returns.

How EPS 95 works

In the EPS 1995 scheme, an employee does not contribute directly. While 12 per cent of the employee’s basic salary goes directly towards EPF, 8.33 per cent of the employer’s share (out of 12 per cent of employer share) goes into the employee’s EPS 95. The amount that goes into EPS 95 is capped at Rs 1250 a month as the pensionable salary is also capped at Rs 15,000 a month. An employee can withdraw the amount that was diverted to EPS anytime on leaving the job but only before completion of 10 years. Else, the employee gets a lifetime pension only if he or she is a member of EPS95 for at least ten continuous years of service. From the age of 58, the pensioner starts getting pension after submitting Form 10-D to the Employees’ Provident Fund Organisation( EPFO).

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