Many employees have such queries regarding their pension after withdrawing from the Provident Fund (PF) before retirement. Would it strain pension benefits? Will he receive monthly earnings after retirement? Let us understand the EPFO (Employees’ Provident Fund Organisation) in simpler terms and analyze everything.
What is the Employee Pension Scheme?
EPS is a retirement programme offered by EPFO; it simply caters to providing monthly savings after retirement. For those working, every month, a salary fraction is deposited into this fund.
A retired person, at about 60, normally begins to receive a monthly pension. But here’s what many people often ask this:
What if I withdraw from my PF account before retirement?
Will I still get a pension?
How much service is required?
Let’s answer them one at a time.
Will You Still Get a Pension If You Withdraw PF Early?
Yes, you will. If you are an EPFO member and have taken money out of your PF before retirement, you can still receive a pension. However, there is one condition- you must have worked for at least 10 years and contributed regularly to your PF account during that time.
So even if you took out some money early, your pension eligibility remains intact if you meet the 10-year contribution rule.
Can you claim it before 58 years?
Yes, you begin to receive pension money when you are 58 years old. However, the Employees’ Provident Fund Organization (EPFO) allows for early claims at the minimum age of 50.
But this option carries certain risks. Beyond 4% deducted from your monthly amount per year of early pension withdrawal from age 58.
Take for example that if you retire at 55 years instead of 58, a deduction of 12% will be applicable for the rest of your life.
How Your PF Contribution and Your Pension Contribution Are Taken Care Of
PF Scheme provides for a monthly contribution of 12% of the minimum salary. The bifurcation is as follows:
EPS receives 8.33% of the pension fund.
EPF (provident fund) receives 3.67%.
Pension account is built up through this pension contribution, and after retirement, the amounts are paid out on a monthly basis.
Your Pension Amount Calculation
The calculation of the EPFO monthly pension entitlement is based on a straightforward formula.
Average Salary × Pensionable Service ÷ 70
Average Salary refers to the last 5 years of basic pay.
Pensionable service relates to the total properly regular amounts employees have consistently deposited in the Employees’ Provident Fund (EPF) for the period of their service.
The longer your coverage period and the higher the pay, the more will be the pension amount.
What Do You Get After Retirement?
After retirement, EPFO allows you to take 75% of your PF amount in a lump sum. The other 25% is kept to provide you with a monthly pension.
This mechanism assures that you have both a one-time fund and consistent monthly income in your post-retirement life.
Final Thoughts
Withdrawing money from your PF doesn’t really prevent you from getting a pension. Your pension is safe as long as you work for 10 years and regularly contribute to it. Just remember early withdrawal, and then you will be financially secure after retirement.