How Rs 10,000 basic salary can lead to over Rs 1 crore retirement corpus: At present, many investment options and retirement schemes are available, but in terms of features and benefits, none of them matches the Provident Fund Scheme of Employees Provident Fund Organization (EPFO). The interest rate on PF account is also better. This rate is higher than many saving schemes. Also, the retirement corpus deposited in the PF account of people working in the organized sector is completely safe and the return on it is also guaranteed by EPFO.
How does EPFO scheme work?
12% of the basic salary and dearness allowance of people working in any company or organized sector is deposited in the PF fund every month and the same contribution goes to the PF account from the company. 12% of the basic salary and dearness allowance of the employee goes to the EPF account every month while the company’s contribution is divided into two parts. Out of which 8.33% is deposited in the Employees Pension Scheme (EPS) i.e. pension fund and 3.67% goes to the Employees Provident Fund i.e. EPF.
What is Employees Pension Scheme?
Employees Pension Scheme is a pension scheme, which is managed by EPFO. EPS was launched in the year 1995. It is for employees working in the organized sector. You will get the benefit of this scheme only if your job tenure is at least 10 years. However, you will start getting this pension after completing the age of 58 years.
Also read: Mutual Fund SIP for Car: Earn enough to buy cars like Creta, Brezza on down payment, monthly SIP of Rs 5000 gave this much return
What is required for EPF?
To avail the benefits of Employees Provident Fund (EPF), people working in the organized sector have to fulfill certain criteria. The employee should be working in an organization having 20 or more employees and to avail the benefits of EPF scheme, the organization must be registered with EPFO. Apart from this, organizations with less than 20 employees can voluntarily join the EPF scheme by registering with EPFO. Employees with salary less than Rs 15,000 must register for the EPF scheme and people with salary more than Rs 15,000 can opt for the EPF scheme on a voluntary basis by taking approval from the Assistant PF Commissioner. For the EPF scheme, the age of the employee should be between 18 and 58 years. For its membership, the basic salary and dearness allowance of the employee should be covered under the EPF Act, 1952.
When can you claim for EPF scheme?
EPFO members can claim the corpus deposited in their EPF account after retirement or after leaving the job. For this, the necessary criteria have to be fulfilled. In case of death of an EPFO member working in the organized sector, the entitled members of his family can get the benefit of EPF scheme. The entitled members of the family will be able to claim for this pension scheme.
Also read: How to use UPI Circle feature? Know the complete process of creating a secondary user before the update comes
EPFO: This is how you can create a retirement corpus of more than Rs 1 crore
Suppose an employee gets his first job at the age of 25 and in return he earns Rs 40,000 per month out of which Rs 10,000 is his basic salary. If the employee gets a 10% increment in his salary every year till retirement (till the age of 58), then the contribution of the employee and the company will continue to be made in the EPFO scheme for the next 33 years.
As we all know that under the rules of EPFO, 12% of the basic salary and dearness allowance of the employee i.e. in case of basic salary of Rs 10,000, Rs 1200 will be deposited in the EPF account every month from the employee’s side and the same contribution will be added to this account from the company’s side. Out of the company’s contribution of Rs 1,200, Rs 367 will go to the employee’s EPF fund. Thus, the total monthly contribution to EPF is Rs 1,567 and on this amount, the contribution of the company and the employee will keep increasing on getting an increment of 10% in the annual salary. In this way, how much retirement corpus will be collected in the EPF account after 58 years, see the complete calculation here.
Age of the employee: 25 years
Service: 33 years (till retirement age)
Monthly Contribution: Rs 1,200 (Employee) + Rs 367 (Company) = Rs 1,567
Annual increment in salary: 10%
Interest on EPF account = Average 8% per annum
Total deposit after 33 years = Rs 35,20,445 (employee contribution) + Rs 10,76,669 (company contribution) + Rs 71,85,685 (interest) = Rs 1,17,82,799 (Total balance in EPF account of EPFO member after attaining the age of 58 years)
(Note: This calculation is done using EPFO calculator.)
Also read: How to apply online for EPF member pension, these documents will be required in EPS application
Apart from this, the company also collects 8.33% contribution in the employee’s EPS account during the job, i.e. Rs 833 if the basic salary is Rs 10,000. The company’s contribution will also increase when the employee gets a 10% increment in salary every year.After retirement, the employee becomes entitled to pension under the EPS scheme. Let us tell you that there is a provision of 7 types of pension for EPFO members. Some pensions are available for financial help to the family members of the EPFO member in special circumstances. Under what circumstances and how this pension can be claimed, you can check the complete details here.
Remember this advice of EPFO
There is a very important advice for the employees working in the organized sector i.e. people doing private jobs. EPFO says that never consider your PF account as a bank account to fulfill your financial needs. EPF account is for long term wealth creation i.e. to create a retirement fund with the aim of providing financial security to the employees working for the company in old age. In such a situation, EPFO members are advised to withdraw advance money from their EPF account only when it is very necessary and this advance amount should be taken only for the reasons specified in the scheme.
