Finance @ Knowledge Zone



Pension Funds: A Perspective

- by Swetha Narayanaswamy *

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Part - III

The amount of the pension benefit is based on the employee's average salary during the final year of employment and the total number of years of employment. Under the EPS, members must have completed a minimum of ten years of service and must be at least 58 years old.
However, if an employee has completed twenty years of service, he/she may obtain an early pension from age 50. Under this provision, the amount of pension benefit is reduced by 3 per cent for every year falling short of 58. Exemption from the EPS is allowed, but in this event, the employer will have to cover the government's contribution.

3) Employees' Deposit Linked Insurance Scheme (EDLI)
The EDLI programme was established in 1976. This programme provides lump sum benefits upon the death of the member equal to the average balance in the member's EPF account for the 12 months preceding death, up to Rs. 25,000 plus 25 per cent of the amount in excess of Rs. 25,000 up to a maximum of Rs. 60,000. Contributions received are kept in the Public Account and earn an interest of 8.5 per cent. Health care and insurance are covered through Employees' State Insurance Corporation.

4) Other Schemes
The central government alone administers separate pension programs for civil employees, defense staff and workers in railways, post, and telecommunications departments. This is called the Civil Servants' Pension Scheme (CSPS). These benefit programs are typically run on a pay-as-you-go, defined-benefit basis. The schemes are non-contributory i.e. the workers do not contribute during their working lives. Instead, they forego the employer's contribution into their provident fund account. The entire pension expenditure is charged in the annual revenue expenditure account of the government.

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* Contributed by -
Swetha Narayanaswamy,
First Year M.B.A.,
ICFAI Business School, Mumbai.