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Retirement benefits have assumed importance in the falling interest rate scenario. In India, there are two such schemes: Employees' Provident Fund (EPF) scheme and the National Pension Scheme (NPS). A recent proposal by the government to tax the final proceeds of EPF at the time of withdrawal caused a public furore.

1. What are the features of EPF and NPS?

EPF, which came into exis tence in 1952 is a mandato ry retirement savings product for employees of notified firms, including government em ployees, which employ a minimum of 10 employees. NPS, on the other hand, is a relatively new scheme which was notified in 2004 and is currently a voluntary scheme. It is offered to people who have joined workforce after 2004 and is mandatory for government employees.

2. How are the schemes administered?

Under the EPF scheme, the employee contributes 12% of basic and dearness al lowances every month. The employer makes a matching contribu tion. The employee's contribution is eligible for income-tax deduc tion up to `1.5 lakh a year. Under the NPS, which is a voluntary schemes, one has to make a mini mum contribution of `6,000 every year and there is no cap on invest ment and here too empl0yers also contribute to the fund. But under NPS, the employers' contribution is also eligible for tax deduction

3. What is the basic difference between the two pension schemes?

While EPF is a defined benefit scheme wherein returns are defined and tax exempt, NPS is a defined contribution scheme and the returns are not defined. This is largely because the EPF corpus, managed majorly by the EPFO, is invested in fixed income products, essentially government bonds. Under NPS, investments are managed by pension fund manager notified by the regulators and invest also in equity products.

4. Which of the two is more transparent?

NPS is perceived to be a more transparent scheme because a subscriber gets to know the value of his investments on a day to basis. But in case of EPF, the value of the investment is known only annually , after the labour ministry announces an annual return for the scheme.

5. Is premature withdrawal allowed?

While some withdrawals are allowed under EPF, there is no such provision under NPS.

A subscriber has to close an account and reopen a new account in case of withdrawals.

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