EPFO Reform: The government is preparing to make major reforms in EPFO. The monthly salary limit of Rs 15,000 can be increased to Rs 25,000. With this, more employees will join EPF and pension, their retirement savings will increase.
EPFO Wage Ceiling Hike: Employees Provident Fund Organization (EPFO) is preparing to make a big change for its members. There is news that the government can increase the monthly salary limit (Wage Ceiling) for EPF (Employee Provident Fund) and EPS (Employee Pension Scheme). At present this limit is Rs 15,000 per month and consideration is going on to increase it to Rs 25,000. Let us understand what effect this will have on your take home salary and pension…
Why is the limit of Rs 15,000 in EPF changing?
DFS (Department of Financial Services) Secretary M Nagaraju said in Mumbai that due to the current limit, many employees who earn more than Rs 15,000 are still not covered under any pension scheme. This is a very bad situation, because these people become dependent on children in their old age. Only those employees whose basic salary is up to Rs 15,000 are included in EPF. Employees earning more than this are optional and it is not mandatory for their employer to register them. This shows lack of pension coverage, especially in cities.
What is EPFO’s proposal?
According to several reports, EPFO is considering increasing this limit to Rs 25,000. This proposal can be placed in the CBT (Central Board of Trustees) meeting of EPFO early next year. According to an internal study, the increase of Rs 10,000 could include more than 1 crore new employees in the mandatory EPF and EPS coverage.
Why is the government making these changes?
This step is towards strengthening India’s social security network. Now 8.3 crore people have joined under Atal Pension Yojana, of which almost half are women. Two-thirds of people in India still do not take life insurance. Young earners may not be able to save enough for retirement after 30 years. Therefore, increasing the EPF limit will enable more employees to be included in long-term retirement savings.
How do EPF contributions work today?
12% of the employee’s salary goes to EPF. The employer i.e. company contributes 12%. In which 8.33% goes to EPS i.e. pension and 3.67% goes to EPF. If the limit increases, the contribution to both EPF and EPS will increase. This means bigger retirement savings and higher pension benefits.
How much will the new limit affect your salary and pension?
- If you earn Rs 15,000-25,000, you will now automatically join EPF and EPS. With this, monthly savings will be mandatory, lifelong pension will be available after 10 years of service and more interest will be deposited in EPF.
- If you earn more than Rs 25,000 then joining will still be optional. If employers wish, they can give EPF benefits to more employees than you.
- If you are already an EPF member, your contributions can increase, thereby increasing the EPF corpus, increasing EPS (pension) benefits, increasing employer contribution and increasing tax-free long-term savings.
- If you are an employer, expenditure on employees will increase, but this will provide employee welfare and long term financial strength.
Why is this change necessary in EPF?
Pension coverage in India is still low compared to the rest of the world. With aging, rising costs of living and low personal savings, employees need structured, long-term retirement planning. EPFO today manages a huge corpus of Rs 26 lakh crore, with 7.6 crore active members. Increasing the limit will increase contributions and strengthen the pension ecosystem.
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