Higher Pension or Bigger PF Balance? Things to Consider Before Rejigging EPS
Provident Fund (PF) is an investment scheme that is provided by the government to offer post-retirement benefits to employees. PF accounts can be of two types, Employee Provident Fund (EPF) and Employee Pension Scheme (EPS). EPF is a voluntary contribution made by an employee and matched by the employer, while EPS is an employer-funded scheme.
There might come a time when an employee has to decide whether to opt for a higher pension or a bigger PF balance. Before making a decision, it is essential to consider the following factors.
1. Retirement Age:
Retirement age plays a vital role in the decision-making process. In case an employee retires early, it is advisable to opt for a bigger PF balance over a higher pension. This is because the amount received as a pension would be less due to the shorter period for which the pension has to be paid. On the other hand, if an employee is retiring at a later age, it may be wise to opt for higher pension as the pension amount would be paid for a more extended period.
2. Life Expectancy:
Life expectancy is another crucial factor that an employee should consider. In case the employee has a family history of a long life, opting for a bigger pension would be wise. However, if the employee does not have a family history of prolonged life, it may be better to go for a bigger PF balance, as the pension amount received may be less than the contribution made.
3. Financial Needs:
A person’s financial needs also play a crucial role in the decision-making process. If an employee has sufficient funds and does not need a higher pension, opting for a bigger PF balance may be a more suitable option. On the other hand, if an employee needs a higher pension to sustain their expenses, it may be advisable to opt for a higher pension.
4. Future Plans:
An employee’s future plans should also be taken into account before making a decision. If an employee has plans to purchase a house or to make any other significant investments, it may be better to opt for a bigger PF balance. In contrast, if an employee is not planning any significant investments and needs a steady income, opting for a higher pension may be a more suitable option.
Taxation is another factor that should be considered. PF withdrawals are tax-free after five years of continuous service. However, pension income is taxable. If an employee is in a higher tax bracket, it may be better to opt for a bigger PF balance, as there would be no tax implications.
In conclusion, while opting for a higher pension or a bigger PF balance, there are many factors to consider. Retirement age, life expectancy, financial needs, future plans, and taxation are some of the key factors that should be taken into account while making a decision. It is essential to understand the pros and cons of each, and select the one that suits the employee’s needs best.