Thursday, July 10, 2014

More EPS fine provided the employees can opt out into NPS

News items like EPS-95: Rs 1,000 monthly pension, 28 lakh to benefit really upset me. I realised the scope of this scheme only on retirement! This is a scheme which sought to give private sector similar benefits as central government pension (discontinued for new employees as it is a financial burden for the government -  actually, the current tax payers). The scheme is subject to some arbitrary constraints which make it viable at the expense of the better off. Charge higher taxes but don't cross-subsidize in a non-transparent manner.

I had assumed that I was not a member of EPS because I had not opted for it when it came out. I did not realise that my option was not valid or relevant after I had changed my job and moved from the company managed fund to the government managed one.

From the same news item(emphasis mine):
At present, workers whose basic wage at the time of joining is up to Rs 6,500 per month, including basic pay and dearness allowance, can be subscribers of the EPFO schemes.
This is news to me. The companies always me the impression that membership to EPFO was mandatory. Given a choice, even PPF would have been preferable. And these days, NPS would most likely be the preferred option for anyone earning more than the EPFO limits.

I suspect the limit has been increased to make the operation of EPFO/EPS temporarily solvent and postpone the actual financial problems of the organisation to the next generation.

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