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Contribution to the Employees’ Provident Fund (EPF) and Employees’ Pension Scheme (EPS) is deducted every month from the salaries of crores of salaried employees working in the organized sector. According to EPFO rules, 12 percent of the employee’s basic pay and dearness allowance (DA) goes to EPF, while out of the 12 percent contribution of the employer (company), 8.33 percent is deposited in the Employee Pension Scheme (EPS-95) and the remaining 3.67 percent is deposited in the EPF account. This monthly pension received in the form of social and financial security after retirement becomes a major support in old age.
Basic rules of eligibility for EPS pension
To get regular monthly pension under EPS, an employee has to fulfill certain mandatory conditions:
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It is mandatory for the employee to be an active member of EPFO.
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Minimum to receive pension 10 years regular service (Pensionable Service) should be completed.
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Standard age for receiving regular pension 58 years Has been decided.
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If a member wants to take pension after the age of 50 years and before the age of 58 years, he can take ‘Early Pension’, in which the pension is reduced at the rate of 4 percent per year for the number of years before the age of 58 years.
Official formula for pension calculation
As per EPFO rules, monthly EPS pension is calculated based on the following standard formula:
$$\text{Monthly Pension} = \frac{\text{Pensionable Service} \times \text{Pensionable Salary}}{70}$$
The two most important components of this formula are:
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Pensionable Service: Total years spent by the employee in the job. If an employee has completed 20 years or more of service, then under EPFO rules he/she 2 years additional service weightage (bonus) Are being given.
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Pensionable Salary: The average basic pay and DA of the last 60 months before leaving the job or retirement is considered as pensionable salary. As per the present rules, the statutory limit of salary in EPS (Wage Ceiling) is maximum ₹15,000 per month Fixed (unless the employee has opted for ‘Higher Pension’).
Calculating Pension on 25 Years of Service (Detailed Example)
Suppose an employee has worked continuously for 25 years in the private sector and his monthly basic salary has been at or above the statutory limit of ₹15,000:
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Total Actual Service: 25 years
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Bonus for more than 20 years of service: + 2 years
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Total Pensionable Service: 25 + 2 = 27 years
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Pensionable Salary (Maximum Limit): ₹15,000 per month
When placing values in a formula:
$$\text{Monthly pension} = \frac{27 \times 15,000}{70}$$
$$\text{Monthly pension} = \frac{4,05,000}{70} \approx \mathbf{₹5,785.71}$$
That is, on completion of 25 years of service under the standard salary range of ₹15,000, the employee will get approximately ₹5,786 per month Will get pension for life.
If Higher Pension option has been selected
After the historic decision of the Supreme Court, the limit of ₹ 15,000 is not applicable for eligible employees who have opted for higher pension on actual salary. For example, if an employee’s average basic salary for the last 60 months has been ₹50,000, his monthly pension at 25 years of service (27 years of pensionable service) will be as follows:
$$\text{Monthly pension} = \frac{27 \times 50,000}{70} \approx \mathbf{₹19,285.71 \text{ per month}}$$
Other important facts related to EPS pension
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Minimum Pension Guarantee: A minimum pension of ₹1,000 per month is currently guaranteed by the government under EPS-95.
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Family Pension: In case of death of the pensioner, his widow/widower gets 50 percent of the pension amount for life and maximum 2 children are given 25-25 percent pension till the age of 25 years.
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Option on less than 10 years service: If the total service of an employee is less than 10 years, then he is not eligible for pension, but he can withdraw the entire amount deposited in EPS in lump sum (Scheme Certificate / Withdrawal Benefit) by filling Form 10C from the EPFO portal.