Can I Opt Out Of EPS?

The Employees' Pension Scheme (EPS) is a pension scheme administered by the Employees' Provident Fund Organization (EPFO) in India, aimed at providing retirement benefits to salaried employees. It is a mandatory scheme for employees who are covered under the Employees' Provident Fund (EPF). However, there are certain conditions under which an employee might consider opting out of the EPS, though it is a relatively complex process and comes with various implications.

Can You Opt Out Of EPS?

EPS Participation is Automatic for EPF Subscribers

Under the current rules, employees who are contributing to the Employees' Provident Fund (EPF) are also automatically enrolled in the Employees' Pension Scheme (EPS). This means that for most employees, opting out of EPS is not an option, as participation is mandatory.

Contribution to EPS

The employee and employer contribute to the EPF every month, but only a portion of this contribution is directed towards the EPS. The employer contributes 8.33% of the basic salary and dearness allowance towards the EPS, but this is subject to a ceiling limit of ₹15,000 (basic salary + DA). For employees earning more than ₹15,000, the contribution to the EPS is still capped at 8.33% of ₹15,000, i.e., ₹1,250 per month. This contribution is made for a period of 10 years or more to be eligible for pension benefits.

Opting Out - No Direct Option

As per the current regulations, employees cannot directly opt out of the Employees' Pension Scheme (EPS) if they are contributing to the EPF. The only way to not participate in the EPS is to not contribute to EPF, but this would mean giving up the benefits of EPF as well, which are significant for retirement savings.

Alternatives to Opting Out

Non-contribution to EPF

If an employee is not interested in participating in the EPS, they would have to request their employer to stop contributing to the EPF, but this would eliminate the Provident Fund (PF) benefits too, which are essential for retirement. This is not a viable option for most employees, as EPF is a valuable long-term savings tool.

Voluntary Contribution to Pension Scheme

In case the employee's salary exceeds ₹15,000, they cannot opt out of the pension scheme unless the employer stops contributing to the EPF itself, but the employee can choose to increase their contribution to the EPF and direct it towards the Provident Fund (and not the pension scheme). This would, however, require specific action and employer cooperation.

Pension Withdrawal

If the employee has contributed to the EPS for a limited time (less than 10 years), they may not be eligible for a pension, but they can withdraw the EPS balance when they leave their job. However, this does not technically mean opting out of the EPS, but rather withdrawing the accumulated pension amount.

Conditions for Withdrawal from EPS

If an employee wishes to withdraw their EPS contribution (instead of opting out), there are a few conditions:

• If the employee has less than 10 years of service, they are entitled to withdraw the pension contributions made under EPS.
• If the employee has more than 10 years of service, they can transfer the EPS balance to their new employer's EPS account, or they can choose to apply for a pension when they reach the retirement age (58 years).
• Employees can also withdraw EPS benefits when leaving the job if they do not meet the minimum pensionable service.

Implications of Opting Out or Withdrawing from EPS

Loss of Pension Benefits

The biggest disadvantage of opting out or withdrawing from EPS is the loss of retirement security. The pension scheme offers financial support in old age, ensuring a steady income even after retirement.

Impact on Retirement Planning

Opting out of EPS means that the individual would not receive a pension upon retirement, which could impact their financial security after they stop working.

Employer and Employee Contributions

If an employee is forced to opt-out by not contributing to EPF, both the employer and employee lose out on contributions to the retirement savings corpus.

Example

Let’s consider Ravi, an employee working in a private company with a monthly salary of ₹50,000. Ravi contributes towards the Employees' Provident Fund (EPF), and his employer contributes 8.33% of his salary (up to ₹15,000) towards the Employees' Pension Scheme (EPS).

Ravi wants to opt-out of the EPS but still wants to contribute to the EPF. Unfortunately, there is no direct option to opt-out of EPS while continuing with EPF contributions. To avoid EPS, Ravi would have to forgo the entire EPF contribution, which is not a practical solution for him.

Ravi can, however, choose to withdraw his EPS balance if he leaves his job before completing 10 years of service, but this is not the same as opting out of EPS voluntarily.

Conclusion

Employees cannot directly opt out of the Employees' Pension Scheme (EPS) while they are contributing to the Employees' Provident Fund (EPF). Participation in EPS is mandatory for EPF members, and the contributions are automatically deducted from the employee’s salary. However, there are ways to withdraw or transfer EPS contributions under certain conditions if the employee is not interested in receiving a pension or does not meet the service requirement. It is essential to carefully consider the long-term implications of opting out of EPS, as it could affect one's retirement security.