The Employees’ Provident Fund Organization (EPFO) has recently introduced a new EPFO higher pension link scheme that promises higher payouts to pensioners.
However, before jumping on the bandwagon, it is important to understand the scheme’s details and consider its potential drawbacks.
Here are five reasons why you should avoid the EPFO higher pension link scheme.
1. Complex Calculation Method
The EPFO’s new scheme calculates the pension amount based on the average salary of the last five years of an employee’s service. However, this calculation method is complex and subject to errors, leading to inaccurate pension amounts.
Moreover, the scheme does not provide any clarity on how the average salary will be calculated in case of employees who have worked for less than five years.
2. Lower Pension for Nominees
Under the higher pension link scheme, if a pensioner dies, the spouse will receive only 50% of the pension amount. This is lower than the 100% payout under the existing pension scheme.
In addition, in the absence of a spouse, the nominee will receive only 20% of the pension amount, which is significantly lower than the current 100% payout.
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3. No Increase in Corpus
The EPFO’s higher pension link scheme does not offer any increase in the pension corpus. This means that the pension payout will remain the same throughout the pensioner’s lifetime, without any adjustment for inflation.
In contrast, the existing pension scheme offers a fixed increase in the pension amount every three years to keep up with inflation.
4. No Flexibility in Contribution
The EPFO’s new scheme does not offer any flexibility in the contribution amount, which means that employees cannot choose to increase or decrease their contribution amount as per their financial situation.
This lack of flexibility may be a problem for those who face financial emergencies or have irregular income streams.
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5. No Tax Benefits
The EPFO higher pension link scheme does not offer any additional tax benefits over and above the existing pension scheme.
This means that employees will have to pay taxes on their pension income as per their applicable tax slab, reducing the overall value of the pension amount.
The EPFO higher pension link scheme may seem attractive at first glance, but a closer look reveals several potential drawbacks.
It is important to consider these drawbacks and evaluate the scheme’s suitability based on individual financial goals and circumstances.
The existing pension scheme may be a better option for those looking for a steady and reliable source of retirement income with tax benefits and flexibility in contribution amount.