EPF vs NPS

Having a systematic savings plan for your retirement is very important. The government has started two major schemes to inculcate this habit in everyone - EPF and NPS. 

Let us start by taking a glance at their differences first. 

What is the Difference Between NPS and EPF?

If you are searching for ‘EPF vs NPS’, the major difference is that EPF is only for salaried individuals, whereas the other can be started by anyone. 

This table highlights some of the major differences between the two saving schemes - 

What is NPS?

NPS stands for the National Pension System and it was made available to every citizen on the 1st May, 2009. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). 

Here are some more details about NPS - 

• Any individual working in any sector (central, state, or even unorganized) can start an NPS account

• The Central Recordkeeping Agency (CRA) for the NPS will give the individual a Permanent Retirement Account Number or a PRAN

• This system is completely voluntary for individuals and the amount of money saved also depends on the individual

• The initial minimum contribution to be made is Rs.500 for Tier-I and Rs.1,000 for Tier-II

• Tier-I should contribute at least once per year, and the minimum amount per contribution should be Rs.500, while the minimum contribution per financial year should be Rs.1,000

• For Tier-II subscribers, the minimum amount per contribution should be Rs.250, and no minimum balance is required

• The money can be partially withdrawn after 3 years of starting the account and this can be done only thrice during the total tenure

• The withdrawal cannot be more than 25% of their contributions and the amount will be tax exempted

What is EPF?

EPF stands for Employee Provident Fund and this scheme was launched under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. 

It is controlled by the Ministry of Labour and Employment, and is a compulsory scheme for all employers who employ more than 20 people. In some cases, organizations employing less than 20 people also have to be part of the scheme, depending on terms and conditions. 

Here are some more details about the EPF - 

• The employer deducts a certain amount from your monthly salary and puts it in your EPF account, along with their contribution

• 12% of your basic pay is invested in the EPF account 

• The employer pays only 3.67% of the other 12% that they need to pay (the remaining 8.33% goes to the Employee Pension Scheme account)

• If you change your job, the EPF account is transferable to your new employer

• The employee can voluntarily make a bigger contribution every month

• A percentage of the money can be withdrawn for buying of property

• 90% of the total amount can be withdrawn after the age of 54

• Final settlement can be done once the employee reaches 55 years of age and completes 10 years of service

EPF vs NPS - Which is Better?

If you are searching for ‘NPS vs EPF’ to consider which would be a better retirement fund, consider these points - 

Eligibility

Both these schemes have different eligibility criteria. They are mentioned below - 

• If you are employed at a government or a private firm, you must already have an EPF account where your employer also contributes 

• It is mandatory for your employer to open an EPF account and 12% of your base salary is diverted to your EPF account 

• Your employer also pays 12% of your base salary into your retirement fund (3.67% to your EPF account and the remaining to your Employee Pension Scheme or EPS account)

• Opening a NPS account is a voluntary choice, and you can open it by yourself no matter what your mode of employment

• Anyone between the ages of 18 and 70 can apply for an NPS account

Tax Benefits

The way the tax is calculated varies greatly between an NPS and an EPF account. Here are the details - 

• You can withdraw up to 60% of your funds completely tax-free from your NPS account when you turn 60

• Both your interest amount and your principal amount are tax-free in your EPS account

Rules Regarding Withdrawal

The rules are different when it comes to withdrawing money from these accounts. It is mentioned in detail below - 

• Both allow partial withdrawals for big financial dependencies like purchasing property, medical expenses, or education

• You can withdraw partially from your EPF account after 5 years of continuous payment

• You can withdraw partially from your NPS account after only 3 years of saving in the account

• After maturity, you can withdraw up to 60% of your funds from your NPS account when your are 60 years of age; but you have to use the balance amount to buy an annuity

• After maturity, an employee can withdraw all his funds at the age of 58

You can take all these points into consideration to decide which is better - NPS vs EPF.

Saving money for your retirement is essential, but where and how much to invest is a big question. If you are searching for EPF vs NPS vs PPF (Public Provident Fund), all of them are long-term investment schemes initiated by the government to inculcate a habit of systematic savings.

The EPF account is for all salaried people and contributions are made by both the employee and the employer. Whereas the NPS and PPF account can be opened by all citizens. 

The EPF account has more rules regarding how much is to be set aside every month, even though voluntary contributions can be made. Both the NPS and the PPF are more flexible when it comes to how much is to be invested, and the terms can be tailor made for the investor. 

To summarize, all of the schemes have their pros and cons but are essential. You must start investing in one or more of them to secure your future.