EPF vs EPS: What is the Difference?

To encourage savings habits, the Government of India has introduced various investment and savings schemes. The Employees’ Provident Fund( EPF) scheme and the Employees’ Pension Scheme (EPS) are two such schemes, particularly popular among salaried employees.

However, most people confuse the terms EPF and EPS. While both are savings schemes, they are different from one another. EPF offers you a lump sum retirement amount, whereas EPS is a pension scheme to help you earn regular income even after your retirement. Both schemes promote savings and aim to provide a larger financial cushion for employees after retirement.

Both schemes were introduced and are regulated by the Employees’ Provident Fund organization. EPFO is a statutory body under the Ministry of Labour and Employment of the Government of India. It administers social security schemes framed under the Employees’ Provident Funds and Miscellaneous Provisions Act, of 1952. 

This article aims to clear the confusion between EPF and EPS and help you understand how you can benefit from these social security schemes.

What is EPF?

Employees’ Provident Fund is a retirement savings scheme maintained and offered by the Employees’ Provident Fund Organisation (EPFO). It covers employees working in an organization with an employee strength of more than 20.

You can invest in this scheme to build a corpus for your post-retirement years. You can also use EPF as an emergency fund. 

Under rules set by the EPFO, the employer and the employee contribute 12% of the employee’s basic remuneration and Dearness Allowance(DA) towards this fund.

The employee’s entire contribution goes to the EPF. On the other hand, the employer’s contribution is divided into two parts:

• 3.67% goes toward the EPF.
• 8.33% is added to the Employee Pension Scheme (EPS).

There is one exception to this rule. If the employer’s EPS contribution exceeds ₹1249.50, then the excess amount goes to EPF. 

The UAN or Universal Account Number is a distinguishing feature of EPF. The following points will help you understand UAN:

• UAN is a unique number allotted to each employee enrolled under this scheme.
• Your UAN will remain the same for your entire service tenure.
• You can access information related to your EPF using the UAN. 

Benefits of EPF

• It helps you build a corpus for your golden years.
• You need not invest a lump sum in one go.
• Your employer contributes towards the fund. Hence, while the investment liability gets shared, you enjoy the final corpus entirely.
• You can partially withdraw EPF during emergencies.
• If your EPF contribution doesn’t exceed ₹2.5 lakh per year, the interest accrued is completely tax-free. 

How to Calculate EPF?

To understand how EPF is calculated, here’s an example. Suppose the sum of your basic pay and dearness allowance is ₹27,000. In this case, 12% of ₹27,000 = ₹3240. Hence, you contribute ₹3240 monthly towards EPF.

As discussed, the employer’s share of 12% of basic salary + DA gets divided into two parts. In this case, 8.33% goes towards the EPS. The remaining 3.67% makes up the employer’s contribution towards EPF. 

Employer’s contribution towards EPF: 3.67% of ₹27,000 = ₹990.90

Employer’s contribution towards EPS: 8.33% of ₹27,000 = ₹2249.10

However, in this example, your employer is contributing nearly ₹1000 over and above the EPS threshold of ₹1249.50. Thus, the excess contribution of ₹999.60 (₹2249.10 – ₹1249.50) is added to your EPF. 

Hence, your EPF accumulates ₹1,990.5 (₹990.90 + ₹999.60) monthly.

Therefore, the total contribution by the employer and the employee per month is ₹5230.50.

What is EPS?

Employee Pension Scheme, commonly known as EPS, is a pension scheme backed by the Government of India.

Like EPF, the UAN is crucial for EPS too. Among other things, you can check your latest EPS balance on the EPFO portal using UAN.

The pension fund is released when the employee turns 58, provided they have completed at least ten years of service.

Benefits of EPS

• EPS is a continuous and steady source of income after retirement.
• Posthumously, the nominee will receive a pension. 
• The EPS amount can also be withdrawn if the employee is continuously unemployed for over two months.

How to Calculate EPS?

EPS calculation involves the following two parameters:

• pensionable service
• pensionable salary

This formula can be used to calculate the pension amount:

Pensionable Service × Pensionable Salary / 70

The terms pensionable service and pensionable salary are decoded below:

• ‘Pensionable service’ means the total number of years for which contributions were made towards the EPS account. 
• ‘Pensionable salary’ means the average of the last drawn salary. 

Now, let’s consider that your pensionable salary is ₹14,000 and your pensionable service is 35 years. So, after applying the above formula, your monthly pension stands at ₹7,000.

EPF vs EPS 

This table demonstrates the fundamentals of EPF and EPS. 

Final Thoughts

In this article, we have tried to decode the differences between EPF and EPS. Although both are employee welfare schemes, they differ from each other significantly. Both EPS and EPF serve different and essential purposes. If you are employed with an organisation with 20 or more employees, EPF and EPS will help you in your retirement planning.

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