Can I close my employee pension account even if I'm ineligible?

Ans: The Employee Pension Scheme (EPS) is a significant component of the Employee Provident Fund (EPF). EPS aims to provide employees with a pension after retirement, based on their years of service and salary history. Contributions to EPS are mandatory for employees earning a basic salary of up to Rs 15,000 per month.

Eligibility Criteria for EPS
Eligibility for the EPS requires that:

The employee must have been a member of EPF for at least ten years.

The employee must have attained the age of 58 years for a regular pension or 50 years for an early pension.

If you are not eligible, such as if your salary exceeds Rs 15,000, contributions should not be made to the EPS account.

Identifying the Issue
You have identified an issue where your current employer has started contributing to your EPS account, despite you not being eligible. This error likely stems from miscommunication or misunderstanding of your previous employment details.

Solution to Close the EPS Account
Communicate with Your Employer
The first step is to communicate with your current employer’s HR department. Explain your situation and provide necessary documentation from your previous employer that clarifies your ineligibility for EPS. Ensure that they understand the following points:

Your current basic salary exceeds the threshold for EPS contributions.
Your previous employment details should not have resulted in EPS contributions.
Submit a Joint Declaration Form
Request your employer to submit a Joint Declaration Form to the Employees' Provident Fund Organisation (EPFO). This form should be signed by both you and your employer and must clearly state:

Correction of your EPS membership details.
Request to cease further EPS contributions.
Rectification of past erroneous contributions, if possible.
Provide Necessary Documentation
Ensure you provide all necessary documents that support your ineligibility for EPS, including:

Salary slips showing your current basic salary.
Employment history showing the duration and details of your previous employment.
Any correspondence or documentation from your previous employer about EPS.
Follow Up with EPFO
Once your employer submits the Joint Declaration Form, follow up with the EPFO to ensure that your request is processed. Regular follow-ups can help expedite the correction process and prevent further discrepancies.

Alternative Retirement Planning Options
Since you are not eligible for EPS, it is essential to explore alternative retirement planning options to ensure financial security post-retirement.

Employee Provident Fund (EPF)
Continue contributing to your EPF account. EPF provides a safe and tax-efficient way to save for retirement. The compounded interest on EPF can accumulate a significant corpus over time.

Voluntary Provident Fund (VPF)
Consider contributing to the Voluntary Provident Fund (VPF). VPF is an extension of EPF, allowing you to contribute more than the mandatory 12%. The interest earned on VPF is tax-free, making it an attractive retirement saving option.

Public Provident Fund (PPF)
Invest in the Public Provident Fund (PPF). PPF is a long-term investment with a tenure of 15 years, offering attractive interest rates and tax benefits under Section 80C. It provides a secure way to build a retirement corpus.

National Pension System (NPS)
The National Pension System (NPS) is another effective retirement savings scheme. It offers market-linked returns and allows you to choose your asset allocation between equities, corporate bonds, and government securities. NPS also provides tax benefits under Section 80C and 80CCD.

Mutual Funds
Diversify your investments with mutual funds. Equity mutual funds offer higher returns over the long term, essential for building a robust retirement corpus. Choose actively managed funds to potentially outperform the market and adjust your portfolio based on performance.

Managing Your Current and Future Investments
Diversification
Diversify your investments across various asset classes. A balanced portfolio of equity, debt, and alternative investments can help mitigate risks and maximize returns.

Regular Monitoring
Regularly monitor your investment portfolio. Ensure that your investments are aligned with your retirement goals. Periodic reviews and adjustments can help optimize your portfolio’s performance.

Professional Guidance
Consider working with a Certified Financial Planner (CFP). A CFP can provide personalized advice, help you choose the right investment products, and ensure that your financial plan aligns with your retirement goals.

Addressing Tax Efficiency
Tax-efficient Investments
Invest in tax-efficient instruments like EPF, PPF, and ELSS (Equity Linked Savings Scheme) mutual funds. These offer tax benefits under Section 80C, helping you save on taxes while building your retirement corpus.

Regular Tax Planning
Conduct regular tax planning. Review your investments annually and adjust them to maximize tax benefits. A CFP can help you develop a tax-efficient investment strategy.

Planning for Retirement
Setting Clear Goals
Define your retirement goals. Understand your financial needs post-retirement, including monthly expenses, healthcare costs, and lifestyle requirements. Setting clear goals helps in creating an effective retirement plan.

Estimating the Required Corpus
Estimate the corpus needed to meet your retirement goals. Consider factors like inflation, life expectancy, and healthcare costs. A larger corpus ensures financial security and peace of mind during retirement.

Systematic Savings and Investments
Adopt a systematic approach to savings and investments. Regular contributions to your retirement fund, coupled with disciplined investing, can help you achieve your retirement goals.

Ensuring Financial Security
Emergency Fund
Maintain an emergency fund. An emergency fund covering six months of expenses provides a safety net for unforeseen financial challenges.

Health Insurance
Ensure adequate health insurance coverage. Medical emergencies can deplete your savings. A comprehensive health insurance policy protects your finances and ensures access to quality healthcare.

Life Insurance
Consider term life insurance. It offers high coverage at a low premium, ensuring your family’s financial security in case of unforeseen events.

Final Insights
Correcting your EPS contributions is crucial to ensuring your financial planning aligns with your eligibility. Communicate with your employer, provide necessary documentation, and follow up with the EPFO to rectify the issue. Simultaneously, explore alternative retirement planning options to build a robust corpus. Diversify your investments, regularly monitor your portfolio, and work with a Certified Financial Planner for personalized guidance. Your disciplined approach to financial planning, coupled with these steps, will help secure a comfortable and financially stable retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in