Provident Fund (PF) is among the most significant financial tools among the salaried employees in India which provides a long-term and secure corpus in retirement. The PF employer contribution is one of the many elements of PF which contribute greatly towards the final accumulation and ultimate withdrawal value. To have an effective plan of your post retirement finances, it is necessary to understand the effect of this share of the employer on your PF balance.
Also, as career mobility increases, numerous employees end up having several PF accounts. It is important to know how to combine two PF account without losing momentum on the contribution, losing interest, or maximising your retirement corpus.
The article sheds some light on the PF employer contribution to the withdrawal value, and outlines significant facets of PF account management such as account merger process. It also brushes on other available investment options like Bajaj Finance FD, which is a safe option of keeping savings with good interest rates.
Knowledge of the PF structure and the employer contribution.
The Employees Provident Fund (EPF) is under the control of the Employees Provident Fund Organisation (EPFO) and comprises of compulsory contributions of both the employee and the employer. The fund is usually deposited by 12 percent of the basic salary of the employee with dearness allowance.
Among the 12% that the employer makes, 8.33% is deposited to the Employee Pension Scheme (EPS) and the rest is deposited to the EPF account. The remaining 12 percent is alone in the EPF.
The major details concerning PF employer contribution are:
– It augments the aggregate corpus to more than what the employee provides.
EPFO makes this contribution on a monthly basis.
– The contributions made by the employer receive an equivalent interest rate as the amount contributed by the employee.
– The EPS component is a pension contributor that cannot be withdrawn as in the case of EPF.
The amount contributed by the employer will greatly increase the total balance which will result in an increased amount of withdrawal upon retirement or resignation.
Determination of withdrawal value using employer contribution.
In calculating your ultimate settlement in PF, the corpus is made up of:
– Your contributions
– contribution of the employer to EPF.
– Interests accrued on the employer and employee contributions.
Take the case, suppose that your basic pay is Rs. 20,000. You will pay monthly 2,400 ( 12 of 20,000) of your contribution. Your employer too will make a contribution of Rs.2400 of which a portion is to EPS.
Assuming that your tenure is 20 years and the interest rate that EPFO is offering is 8.5% per annum (as of today according to EPFO).
Effects of employer contribution on withdrawal:
– It is almost twice the corpus of the contribution of employee.
– The interest is attributed to both parts, and it is calculated every month.
– Your corpus would be much lower without the contribution of the employer.
The negligence in the contribution of the employer diminishes the retirement amount, and this may result in poor financial planning.
Significance of maintaining many PF accounts and merging two PF account.
According to the current dynamic nature of the work environment, chances of accumulating several PF accounts are quite high. Every new job would be a new PF account and this generates fragmentation.
Problems with various PF accounts:
Interest earnings may be diluted by the low individual balances.
– Withdrawal becomes complex.
– absence of consolidated account might have implications on the calculation of pensions.
Therefore, the information on how to merge two PF account will be useful to employees changing the workplace.
How to combine two PF account: Process.
– Access the EPFO member portal using the UAN (Universal Account Number).
– Have the One Member, One EPF Account.
– Place the application to open your previous PF account balance in the current account.
– Verification of your former employer and PF account number is to be done.
– EPFO transacts the transfer, which credits your existing PF with past balances and interest.
The consolidation of accounts will guarantee continuity of contributions, increase in total interest, and comfort in monitoring your retirement fund.
Bajaj Finance FD as a supplementary retirement investment.
Although PF offers a good baseline in regard to retirement funds, it is very essential to diversify. FDs are ideal in terms of their low risks and fixed income. Bajaj Finance FD has competitive interest rates where one has the ability to save with a flexible tenure.
Bajaj Finance FD interest rates on seniors (above 60 years):
– 12 – 14 months: 6.95% p.a. at maturity
– 15 – 23 months: 7.10% p.a. at maturity
– 24 – 60 months: 7.30% p.a.at maturity
In case of non-senior citizens (under 60 years):
– 12 – 14 months: 6.60% p.a. at maturity
– 15 – 23 months: 6.75% p.a. at maturity
– 24 – 60 months: 6.95% p.a.at maturity
In addition to providing a safe pay back Bajaj Finance FD has schemes which include monthly interest, quarterly interests, as well as half yearly interests which can be used at various times in retirement with the need to spend various incomes.
Part of your PF withdrawal can be invested in Bajaj finance FD to get a liquidity and better returns than most of the traditional saving schemes.
Summary
To sum up, the PF employer contribution is highly important as it increases your PF corpus, thus influencing the value of withdrawal considerably. It is hardly likely that the contributions of employees would provide enough retirement wealth on their own and the contributions made by employers, where they earn interest, will bridge the gap significantly.
In the case of employees who have switched jobs several times, it is important to know how to combine two PF account without losing the corpus. Online consolidation provided by EPFO is more efficient and earns maximum interest.
In addition, after withdrawal, it is also possible to invest in intelligent products like Bajaj Finance FD which has attractive interests rates and flexible terms that can help your retirement corpus to keep rising and to give you regular incomes after retirement.
A proper planning and use of the employer contributions and optimal reinvestment in such instruments as Bajaj Finance FD can guarantee a safe and comfortable post retirement life.
