Retirement planning is one of the most crucial aspects of long-term financial security. In India, the Employees’ Provident Fund (EPF) and the Employees’ Pension Scheme (EPS) are two important components that together form the foundation of social security for salaried individuals. Both are managed by the Employees’ Provident Fund Organisation (EPFO), yet they serve different purposes. Understanding the distinction between EPF vs EPS is essential to maximise benefits and make informed decisions for your post-retirement financial stability.

Understanding EPF and EPS

The EPF and EPS are both statutory schemes created under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. The EPF focuses on building a lump sum corpus, while the EPS ensures a steady pension after retirement.
The EPS full form is Employees’ Pension Scheme. It is designed to provide lifelong pension income to employees after retirement, whereas the EPF accumulates contributions and interest that can be withdrawn as a lump sum at the end of service. Together, they form a dual benefit structure that combines both growth and security.

Contribution structure of EPF and EPS

Every month, both the employee and employer contribute 12 per cent each of the employee’s basic salary plus dearness allowance. The employee’s entire share goes into the EPF, but the employer’s contribution is divided between the two schemes.

• EPF: 3.67 per cent of the employer’s share is credited to the EPF account. 
• EPS: 8.33 per cent of the employer’s share goes into the EPS, subject to a maximum salary cap of Rs. 15,000 per month. 

The accumulated EPF balance earns interest at the declared rate each financial year, while EPS does not earn interest but guarantees a pension based on years of service and average salary.

Objective of EPF and EPS

The EPF aims to create a substantial retirement corpus by compounding monthly contributions and interest. The balance can be withdrawn upon retirement, or partially for specific needs such as housing, education, or medical emergencies.
In contrast, the EPS is designed to provide regular monthly income after retirement. This ensures that even if you have exhausted your EPF corpus, you still have a reliable source of income through your pension. The EPF vs EPS distinction lies in their purpose—EPF builds capital, while EPS provides continuity of income.

Calculation of pension under EPS

The pension amount under the EPS is determined by a fixed formula:
Monthly Pension = (Pensionable Salary × Pensionable Service) ÷ 70

Here, “Pensionable Salary” refers to the average of the last 60 months’ basic pay and dearness allowance, while “Pensionable Service” represents the total number of years of eligible service. The EPS full form ensures clarity in its purpose—it provides employees with a pension after at least ten years of service. The longer the service and higher the salary, the greater the pension amount.

Tax treatment of EPF and EPS

Both the EPF and EPS offer tax benefits, but in different ways. EPF contributions qualify for deductions under Section 80C of the Income Tax Act, and the interest earned is tax-free if withdrawn after five years of continuous service. The lump sum received at retirement is also tax-exempt.
In contrast, pension income from EPS is taxable as per the individual’s income slab in the year of receipt. Understanding this difference between EPF vs EPS helps employees plan their post-retirement cash flow more effectively.

Withdrawal rules for EPF and EPS

Under the EPF, full withdrawal is allowed upon retirement, permanent disability, or unemployment for more than two months. Partial withdrawals are permitted for specific reasons, ensuring flexibility in emergencies.
The EPS, however, has stricter withdrawal conditions. If you have worked for fewer than ten years, you can withdraw the pension amount as a lump sum by filling Form 10C. If your service exceeds ten years, you become eligible for a lifelong monthly pension starting at the age of 58.

The role of interest in EPF growth

One of the key advantages of the EPF is the annual interest credited to the account. The EPF vs EPS comparison clearly shows that while EPS provides stability, EPF offers higher compounding potential. The EPF Interest Rate, which usually ranges between 8 per cent and 8.5 per cent, significantly enhances long-term savings through compounding. For employees with long careers, the accumulated interest alone can form a substantial portion of their retirement corpus.

How to transfer benefits during job change

When you change jobs, both your EPF and EPS accounts can be transferred using your Universal Account Number (UAN). The process is simple and can be completed online through the EPFO Member e-Sewa portal. Transferring the balance ensures that the continuity of service is maintained, which is essential for calculating pension eligibility under EPS. Maintaining a single UAN-linked account also prevents the loss of accrued benefits during your career transitions.

Balancing EPF and EPS with additional investments

While the combination of EPF and EPS creates a strong foundation for retirement, diversifying your savings ensures greater financial resilience. Fixed Deposits (FDs) are a reliable addition to your portfolio, offering guaranteed returns, flexible tenures, and complete capital safety. Bajaj Finance, for example, provides digital FDs with competitive rates of up to around 7.30 per cent per annum and the highest safety ratings—CRISIL AAA/STABLE and ICRA AAA/STABLE.
Unlike pension benefits, which depend on service tenure, FDs can be customised according to your specific goals. You can select cumulative FDs for long-term growth or non-cumulative options for regular income, making them ideal companions to your EPF and EPS savings.

Final thoughts

Both EPF and EPS serve distinct yet complementary roles in retirement planning. The EPF vs EPS comparison highlights that EPF offers growth and liquidity, while EPS ensures consistent income after retirement. Understanding their differences, contribution structure, and tax implications enables you to make better financial decisions. Supplementing these schemes with secure investments such as Bajaj Finserv Fixed Deposits can enhance your financial stability, providing both steady returns and peace of mind throughout your retirement years.