For salaried employees in India, the Employees’ Provident Fund Organisation (EPFO) plays a crucial role in building a secure retirement. Every month, a portion of salary is deducted toward provident fund contributions, creating a long-term financial cushion. However, many employees are still confused about the difference between EPF and EPS—especially around interest, pension calculation, and withdrawal rules.

Here is a clear and detailed explanation of EPF vs EPS, how each works, and why understanding this difference is important for your retirement planning.

What Is EPF and How Does It Work?

The Employees’ Provident Fund (EPF) is the main retirement savings component for private-sector employees. Both the employee and employer contribute 12% of the employee’s basic salary plus dearness allowance (DA) every month.

• Employee contribution: Entire 12% goes into EPF

• Employer contribution:

  • 8.33% goes to EPS (pension scheme)

  • 3.67% goes to EPF

The biggest advantage of EPF is that it earns annual compound interest, which helps your savings grow significantly over time. For the financial year 2024–25, EPF deposits earn an interest rate of 8.25%, credited annually by EPFO.

Thanks to compounding, EPF can turn into a substantial retirement corpus if contributions continue consistently over a long career.

What Is EPS and Does It Earn Interest?

The Employees’ Pension Scheme (EPS) was launched on 19 November 1995 with the aim of providing a stable monthly pension after retirement. Unlike EPF, EPS does not earn any interest.

Key points about EPS:

• Funded entirely from the employer’s contribution (8.33%)

• No interest or compounding benefit

• Pension amount is government-guaranteed

• Designed to provide lifelong monthly income after retirement

Because EPS does not earn interest, the corpus does not grow the way EPF does. Instead, it works on a defined-benefit model, where pension is calculated using a fixed formula.

EPS Pension Formula Explained

The monthly pension under EPS is calculated using this formula:

Monthly Pension = (Pensionable Salary × Years of Service) / 70

• Pensionable salary is capped (as per EPFO rules)

• Years of service include total eligible service under EPFO

For example, someone with a pensionable salary of ₹15,000 and 35 years of service would receive a pension based on this calculation.

To qualify for EPS pension:

• Minimum 10 years of service is mandatory

• Pension starts at 58 years of age

• Minimum guaranteed pension is ₹1,000 per month

There have been recent discussions and reports suggesting that the government may increase the minimum pension to ₹7,500 per month, but as of now, this has not been officially implemented.

Can You Withdraw EPS Money?

EPS does not allow lump-sum withdrawal like EPF after retirement. However, there are specific situations where partial or full withdrawal options apply:

• If you leave your job before completing 10 years of service, you can withdraw the EPS amount using the prescribed withdrawal form.

• If you complete 10 years but leave employment before age 58, you can opt for a reduced pension later.

• If you continue service until retirement age, EPS provides a monthly pension for life, not a one-time payout.

EPF Withdrawal Rules

EPF offers much more flexibility compared to EPS:

• Partial withdrawals allowed for home purchase, education, marriage, or medical emergencies

• Full withdrawal allowed after retirement

• EPF balance continues to earn interest if not withdrawn immediately

This flexibility and compounding benefit make EPF a stronger wealth-building tool for retirement.

EPF vs EPS: Which Should You Prioritise?

Both EPF and EPS are important, but their roles are very different:

• EPF helps you build a large retirement corpus through interest and compounding

• EPS provides a fixed, government-backed monthly pension without interest

For most employees, EPF should be the primary retirement pillar, while EPS should be seen as a supplementary income source rather than the main retirement fund.

Final Takeaway

Understanding the difference between EPF and EPS is essential for smart retirement planning. While EPF grows through interest and creates long-term wealth, EPS focuses on providing a stable but limited pension without any interest benefit.

If you want financial security after retirement, relying solely on EPS may not be enough. Strengthening your EPF contributions and complementing them with other retirement investments can help ensure a more comfortable and stress-free future.

Disclaimer: This article is for informational purposes only. EPFO rules and pension norms are subject to change. Employees should check official EPFO notifications or consult a financial expert before making retirement-related decisions.