08 Mar, 2015 9:23a.m.

Is NPS better than EPF?

The NPS is more complicated than EPF, but it may ensure a sufficient retirement kitty

If there’s one investment option that has received generous tax breaks in the Budget, it is the National Pension System (NPS). In a watershed move, the Finance Minister has also announced that employees in the organised sector will now be able to opt out of contributions to the Employees Provident Fund (EPF) and invest in the NPS instead. So, if given this choice, what should you do? Here’s how they compare.

Contributions
EPF contributions are mandatory for employees earning up to ₹15,000 a month in the organized sector. Many employers however insist on EPF contributions for all their employees. The contribution is pegged at 12 per cent of your pay (basic plus dearness allowance). Your statutory EPF contributions are matched by your employer. If you are an employee who usually struggles to save, the EPF is a good option for you as it forces you to save at least 12 per cent of your pay.

But if you are targeting a comfortable retirement, note that EPF alone won’t be enough as it is pegged only to your basic pay. The NPS is a voluntary account; you can contribute anything starting from ₹500 a month (₹6,000 a year).

To avail of the tax breaks on the investment, the maximum limit is ₹2 lakh a year. Unlike the EPF, the NPS allows you to skip contributions for a few months if you can’t afford it (investing once a year is mandatory).




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