Fortune favours the brave, is an old saying. EPF, or Employees’ Provident Fund, on the other hand, certainly favours the “performers”. That there is very little exaggeration in such a modern-day extrapolation, is apparent from mere cold numbers, as demonstrated by EPF calculators that are available online.
EPF was legislated in 1952. This earliest social security scheme for employees in the organised sector of India quietly works to build a neat corpus for a person at retirement, thanks to the power of long-term compounding. A glance at the calculator makes it clear that the final corpus generated in an EPF account of an employee depends of the following factors – starting salary, starting age, interest given by the EPFO (Employees’ Provident Fund Organisation) and rate of salary increment that an employee gets throughout the career.
Significance of salary increment in EPF
Of the four above factors only the last one – the salary increment – depends every year significantly on the “performance” of the employee at his/her place of work. This performance not only determines the disposable salary in the hands of the employee but also impacts the EPF corpus by a big amount.
Consider an employee begin to work at the age of 25 years. The salary he/she begins with is Rs 20,000 a month. Let’s make two other assumptions. One, the employee retires at the age of 58, and two, the rate of interest that the employee EPFO fixed separately each year applicable on the outstanding amount in the EPF account every financial year is 8.25%, the rate announced for FY24.
EPF calculation for increments from 2% to 10%
Now is the above employee manages to get a nominal increment of 2% throughout his/her career, the amount that will accumulate in the EPF account at the age of 58 will be Rs 88,53,878 (Rs 88.53 lakh). If the candidate manages 3% increment, the amount crosses Rs 1 crore and will run up Rs 1,01,64,824.
Let this person manage a salary increment of 5% and the amount in EPF will rise to Rs 1,35,68,643 or Rs 1.35 crore. What do you think will happen if the same person manages to get 10% increment during the entire career? Hold your breath – the amount in the EPF account will jump to Rs 3,02,08,574 or Rs 3.02 crore.
