EPF cap on employer’s contribution and its impact on you.

The Provident Fund Office has allowed companies to cap their per-month PF contribution to employees at Rs. 6,500.  Presently, companies contribute an amount equal to at least 12 per cent of an employee’s basic salary towards his/her PF.

With most companies profits are under squeeze it will be a gift to them.But as an employee your retirement corpus will take a serious hit, if a company chooses that it need not provide more than Rs. 6,500.

Let us see how it will impact you.

Assume an individual earning Rs 20,000 as basic which is eligible for EPF contribution(we have not considered DA since several employer’s are bypassing these days).At 12 per cent he will contribute Rs 2400 per month and employer will also contribute the same amount but after deducting mandatory Rs 541 towards Family pension.

Let us assume that the basic salary is increases at 5 per cent per annum. So over next 25 years considering retirement age at 60, the employer and employee will contribute Rs 27.7 lakh. If the EPF continues to declare an interest of 8.5 per cent at 60 his retirement corpus will be Rs 73.13 lakh.

But if employer sticks the cap of Rs 6500 and he his liberal in contributing 12 per cent his monthly out go will be Rs 780 and out of which he will contribute Rs 239 towards your EPF account.Do remember any salary hike will not change this figure till retirement!(Some employer may stick to mandatory 8.33 per cent,it means he will not contribute any amount towards his EPF kitty).

So the retirement corpus will be Rs 39.6 lakh it means his retirement corpus will fall short of Rs 33.5 lakh.

So, I suggest all employees to contribute the  monthly difference towards your retirement corpus,if your employer sticks to the cap of Rs 6500.

Our take: Already Indians are poor, they don’t have any social security,with this cap they  will become poorer.

For most Indians saving for retirement is the last priority, due to medical advancement life expectancy keep increasing , awake and plan now to celebrate your second innings post retirement.If not, depend on your immediate family for  your survival.

For clarification call me and if you wish to share your thought leave your comment below.