EPS Vs NPS: Where should you invest?

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The Employees’ Pension Scheme (EPS) and National Pension System (NPS) are two salient social security schemes backed by the government. Both are designed to provide you with steady income throughout your retirement. However, while EPS is a benefit extended to Employees' Provident Fund (EPF) account holders, NPS is a voluntary scheme you can opt for.

It’s important to note that both EPS and NPS cater to diverse investor needs. The choice between the schemes primarily depends on how well they align with your particular investment goals and retirement objectives.

Key Difference Between EPS and NPS

While EPS and NPS are retirement savings schemes, there are a few parameters under which they differ:

Factor	EPS	NPS
Governing Authority	Employees’ Provident Fund Organisation (EPFO)	Pension Fund Regulatory and Development Authority (PFRDA)
Enrolment	Offered with EPF	Voluntary
Unique Features	Pension on disablement / death, widow pension, children's pension, and orphan pension	Flexible investment options, withdrawable Tier-II account, and easy portability across jobs
Eligibility	EPF members with 10 years’ service and salary + dearness allowance at joining of ₹15,000 or less	Indian citizens between age 18 and 70 years
Eligible Workforce	Organised sector employees and EPFO members	Public, private, and unorganised sectors
Maximum contribution	₹1,250	No limit
Premature withdrawal	Possible under certain conditions	Subject to certain stipulations
Lump sum Withdrawal	Depends on the number of years worked and last drawn pay	Possible if total accumulation is less than ₹2.5 Lakhs
Returns	Stable but contributions don’t earn interest	Market-linked returns
Taxability	Both pension and lump sum are taxable	Income from annuity is taxable, but lump sum withdrawal and purchase of annuity exempt
Tax Benefits	None specified	Deductions up to ₹1.50 Lakhs u/s 80C and 80CCD (1)

Eligibility Criteria of NPS and EPS

When comparing EPS vs NPS, remember that NPS has relaxed eligibility criteria and is available to a wider section of Indian citizens.

To benefit from NPS, the eligibility criteria are as follows:

You must be a resident Indian citizen, a Non-resident Indian (NRI), or an Overseas Citizen of India (OCI)
You must be between the age of 18–70 (NPS can be extended until age 75)

To benefit from EPS, the eligibility terms are as follows:

Your salary + dearness allowance must not exceed ₹15,000 (applies to EPS accounts opened after 1st September 2014)
You must complete 10 years of service to get a pension
You must attain 58 years of age to start receiving the pension

Note: You can obtain a reduced pension at a lower rate from age 50 onwards.

Does NPS or EPS Provide More Income During Retirement?

The financial support you get is perhaps the most important difference between EPS and NPS.

1. NPS

As a market-linked tool, NPS does not offer returns at a fixed, guaranteed rate. Since it invests in government debt, corporate debentures, equity, and alternative investment funds, you can look forward to an attractive rate of return. You can choose your fund manager and determine the level of equity exposure that aligns with your comfort.

For illustration purposes, say you are 30 years of age, and contribute ₹2,000 per month to your NPS account. Further you:

Expect to contribute till age 60
Desire a return at 11%
Would like to use 50% of your maturity amount to purchase an annuity
Expect an annuity rate of 6%

In such a case, you may receive a lump sum value of ₹56,60,456 and a monthly pension of ₹14,151.

2. EPS

When it comes to EPS, the calculations are more straightforward. You get a superannuation pension for:

Completing 10 or more years of service and attaining age 58
Early pension for completing 10 or more years of service and retiring
Ceasing to be in employment before age 58

Your pension is calculated as,

Monthly pension = (Pensionable salary * pensionable service)/ 70

Now, pensionable salary is determined by averaging an individual's income over the preceding five years. It is capped at ₹15,000 even if your basic salary has risen in value.

So, like in the last example, assume that you have 30 years of pensionable service. Then, your monthly pension would amount to (15,000*30)/70 = ₹6,428.57.

Difference in Withdrawal Rules Between EPS and NPS

With EPS, if you do not complete 10 years of service, you can withdraw your funds using Form 10C. The amount you get depends upon the years worked. You get your last drawn pay multiplied by a factor that is higher for a greater number of years worked. Completing 10 years offers a superannuation pension from age 58, or an early pension from age 50 at a reduced rate.

For NPS, withdrawal conditions depend on your employment status and the specifics of your NPS plan. After 5 years of contributing to the scheme, you can exit by investing at least 80% in an annuity and withdrawing the rest as a lump sum. However, if the total accumulated is less than ₹2.5 Lakhs you can take back the entire amount as a lump sum. Partial withdrawals, like for a child's marriage, are allowed after 3 years, capped at 25% of contributions.

Does NPS give a higher pension than EPS?

NPS offers market-linked returns that are potentially higher than EPS pension amounts. However, there is risk associated with NPS and the pension amount is not guaranteed.

Can I have both EPS and NPS schemes?

Yes. While NPS subscriptions are voluntary, you can opt for EPS if you meet the eligibility criteria.

Can I opt out of EPS and NPS?

Yes. You can opt out of EPS at the start of your employment and exit NPS after 5 years.

What happens if I change jobs in the case of EPS and NPS?

NPS is portable across jobs. With EPS, you must make sure you complete 10 years under an EPFO-covered company.

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