EPS Pension: Taking Money Early Means Less Each Month

If you are in the EPS pension plan, you can start getting money when you are 50. But, if you take it early, you will get less money each month. The normal age to start is 58. Think carefully about when you need the money.
By Newsroom | Pension, Finance |

Understanding the Trade-offs of Starting Pension Early

Individuals enrolled in the Employees’ Pension Scheme (EPS-95) possess the option to commence receiving their pension benefits at an age as early as 50. This early withdrawal, however, is coupled with a financial adjustment: the monthly pension amount will be less than if payments begin at the standard retirement age. The decision to claim pension early, between ages 50 and 58, hinges on an individual's financial needs and long-term planning, as it directly affects the sustained income stream post-employment.

You can start EPS pension at 50 — But there’s a catch - 1

EPS Pension Scheme Framework

The Employees’ Pension Scheme (EPS) in India operates as a component of the broader Employees’ Provident Fund (EPF) system. Funding for EPS is derived from a portion of the employer's EPF contribution, specifically 8.33%, alongside a modest contribution from the central government.

You can start EPS pension at 50 — But there’s a catch - 2

  • Normal Pension Age: The standard age to begin receiving EPS pension is 58. This requires a minimum of 10 years of service under the scheme.

  • Early Pension Option: Members who have completed at least 10 years of eligible service can elect to start their pension between the ages of 50 and 57.

  • Deferred Pension: The option exists to delay pension commencement beyond the age of 58, potentially until age 60, to maximize the received pension amount.

Evidence of Early Pension Options and Consequences

Information gathered from multiple sources confirms the existence of early pension withdrawal and its inherent consequences:

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You can start EPS pension at 50 — But there’s a catch - 3

  • Age 50 Withdrawal: Members with a minimum of 10 years of service can initiate their EPS pension from age 50. This early start leads to a reduced monthly pension amount compared to delaying receipt until age 58. (Source: Zee News, Finright.in)

  • Impact of Timing: The age at which pension collection begins has a "significant difference to your monthly income—and therefore, to your long-term financial security." (Source: Finright.in)

  • Standard Retirement at 58: At age 58, individuals receive the "full pension amount you’re eligible for, with no deductions or bonuses." (Source: Finright.in)

  • Expert Recommendations: Some experts suggest that unless there is an urgent need for funds or a health-related issue, waiting until age 60 might offer the "best return from the system." (Source: BusinessToday)

Pension Calculation and Service Years

The pension amount is not solely determined by contributions. EPS is a "defined benefit scheme," meaning the pension is predetermined based on factors such as salary and service period.

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You can start EPS pension at 50 — But there’s a catch - 4

  • Service Calculation: For pension calculation purposes, certain rules may add "bonus years." For instance, two additional bonus years can be added, potentially making it 27 years of pensionable service under specific EPS rules, impacting the final pension sum. (Source: BusinessToday)

  • Relying Solely on EPS: It is generally advised that the EPS should not be the sole source of retirement income, but rather a supplementary financial cushion. (Source: BusinessToday)

Contribution and Eligibility

Directly increasing one's EPS contribution is not possible. The scheme's benefits are linked to the established employment contributions and subsequent service period.

  • Contribution Limits: "You cannot directly increase your EPS contribution." (Source: Capital Flow India)

  • Eligibility Basis: Eligibility and pension amounts are based on salary and service duration, not merely the total amount contributed. (Source: Capital Flow India)

Expert Insights on Pension Timing

Financial advisors emphasize the importance of strategic timing for pension commencement.

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"The age at which you choose to start your Employees’ Pension Scheme (EPS) pension can make a significant difference to your monthly income — and therefore, to your long-term financial security." - Finright.in

"Experts say EPS should not be relied on as the primary retirement income source. The default age for EPS pension is 58, but unless you urgently need cash or face a health issue, waiting until 60 gives the best return from the system." - BusinessToday

Summary and Implications

The Employees’ Pension Scheme (EPS) offers flexibility in pension commencement, allowing individuals to start withdrawals as early as age 50, provided they meet the minimum service criteria of 10 years. However, this flexibility comes at a cost: an actuarially determined reduction in the monthly pension amount. The standard and optimal age for receiving the full pension benefit is 58, with some guidance suggesting that delaying until 60 could yield greater returns. It is critical for members to understand that EPS is intended as a supplementary retirement income and not the sole financial provision. Decisions regarding pension timing should be carefully considered, weighing immediate financial needs against the long-term implications for retirement security.

Sources

Frequently Asked Questions

Q: Can I get my EPS pension money before I am 58?
Yes, you can start your pension when you are 50 if you have worked for at least 10 years.
Q: Will I get the same amount of money if I start my pension early?
No, if you start your pension early, you will get less money each month.
Q: When is the best time to start my EPS pension?
The normal age is 58. Some experts say waiting until 60 might give you more money over time.
Q: Can I add more money to my EPS pension?
No, you cannot add more money yourself. Your pension amount is based on your salary and how long you worked.