EPFO Pension Calculation: How much monthly pension will you get on retirement after 10 years of service and salary of ₹ 28,000? understand the complete mathematics

Provident Fund (PF) is deducted every month from the salary of crores of employees working in the private sector, but most of the employees are not clear how much amount they will get as monthly pension after retirement. As per the rules of Employees’ Provident Fund Organization (EPFO), an employee has to complete at least 10 years of continuous service to be eligible for lifetime monthly pension.

A deduction of 12% from the salary (Basic Salary + DA) of an employee working in the private sector is deposited in the Employees Provident Fund (EPF). The company or employer also contributes an equal 12%, but the employer’s share of this 12% is divided into two parts:

• 3.67% Deposited in the employee’s EPF account.

• 8.33% Goes into the Employee Pension Scheme i.e. EPS (EPS-95) fund.

• Apart from this, 0.5% EDLI (insurance scheme) and 0.5% administrative charges are borne by the employer.

This is where the biggest technical problem comes in which is important to understand. Statutory Wage Ceiling maximum for contribution to Pension Fund (EPS) under Government and EPFO ​​rules ₹15,000 per month Has been decided.

Even if the employee’s basic salary is ₹28,000, under the normal rules the employer’s pension contribution of 8.33% is deducted only to the extent of a maximum of ₹15,000 (i.e. 8.33% of ₹15,000 = maximum of ₹1,250 per month). Therefore, for pension calculation, the pensionable salary is considered to be a maximum of ₹ 15,000 instead of ₹ 28,000 (unless the employee and the employer have jointly availed the higher pension option on the actual salary).

The monthly pension formula decided by EPFO ​​is as follows:

$$\text{Monthly Pension} = \frac{\text{Pensionable Salary} \times \text{Pensionable Service Period}}{70}$$

• Pensionable Salary: The average basic pay (with a maximum ceiling of ₹15,000) of the last 60 months (5 years) immediately preceding retirement is considered.

• Pensionable service years: Total service period completed by the employee (here 10 years).

When placing values ​​in a formula:

$$\text{Monthly pension} = \frac{15000 \times 10}{70} = \frac{150000}{70} \approx \text{₹2,143 per month}$$

Thus, after completing 10 years of service the employee at the age of 58 years will get approximately ₹2,143 per month Will receive lifetime monthly pension of Rs.

(Note: If in a particular case the option of higher pension is validly exercised at an actual salary of ₹28,000 under the 2014 amendments, then the calculation would be $(28,000 \times 10) / 70 = \text{₹4,000 per month}$.)

1. Minimum Pension Guarantee: The minimum pension under EPS-95 has been fixed at ₹1,000 per month by the government. Even if the calculation comes out to be less than ₹1,000, you still get at least ₹1,000.

2. Early Pension Option: The employee can take pension even after the age of 50 years, but a reduction (reduction rate) of 4% per year will be applicable for the number of years the pension is started before the age of 58 years.

3. 2 Years Bonus Service Period: If an employee completes pensionable service of 20 years or more, he gets additional weightage (Bonus Years) of 2 years in the service period (this bonus is not applicable for 10 years of service).

4. EPF lump sum fund: This is ₹2,143 only monthly pension. The principal amount deposited in the employee’s and employer’s EPF (3.67% + 12%) and the annually compounded interest thereon are returned as a tax-free lump sum on retirement.