Kolkata: The Employees’ Provident Fund (EPF) is a retirement benefits scheme that was designed to provide financial security to the employees of the formal sector in India. It was introduced under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, and is managed by the Employees’ Provident Fund Organisation (EPFO). Under this scheme, contributions are drawn from both the employees and employers towards the creation of the EPF account. Each contributes 12% of the employee’s basic salary. But only the amount taken from the employee’s salary goes fully to the EPS account and 3.67% of the employer’s contribution is channelised into it. The rest 8.33% (12-3.67) goes into the creation of Employee Pension Scheme (EPS) which pays a monthly pension to the employee and his/her family members after his/her expiry.
EPF is paid as a lump sum when the person retires. According to the formula of EPF calculation, the final amount that an employee gets depends on the basic salary, DA, average rate of increment during the service period and rate of interest paid on the accumulated amounts every year. Let’s take the example of a person who begins his/her career with an initial basic salary of Rs 30,000 and see what sort of final corpus can he/she expect in the EPF considering the retirement age to be 58.
Let’s assume the person gets Rs 30,000 basic pay (+ Dearness Allowance) at the age of 25 years. Let this person get an average salary hike of 5%, which is roughly the average rate of inflation in India is the long term in this century. For the calculation we have also assumed the rate of interest paid by EPFO during the working life at 8.25%. (Incidentally, in FY24 and FY25, the EPFO has declared an interest rate of 8.25%.)
Using an online EPF calculator, one get’s to see that the size of the corpus with the above assumptions work out to be Rs 2,15,49,312 or Rs 2.15 crore. This amount is created in a period of 33 years. A point to note is that among all the factors, the rate of salary increment is something which is somewhat in control of the employee. All the other factors are beyond the control of the employee.
