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Provident Fund, which is deducted every month from the salary of employed employees, not only creates a lump sum fund (EPF), but also guarantees the pension they receive every month after retirement. As per the rules of Employees Provident Fund Organization (EPFO), 12% of the employee’s basic salary (Basic + DA) goes into the EPF account. The employer’s (company) contribution of 12% is divided into two parts—3.67% in EPF and 8.33% Employees Pension Scheme (EPS) Is deposited in.
If an employee has worked continuously for 15 years and his pensionable salary is ₹ 15,000 per month, then EPFO has fixed a direct formula for how much monthly pension he will get on completion of 58 years of age.
The pension formula prescribed by EPFO is as follows:
$$\text{Monthly Pension} = \frac{\text{Pensionable Salary} \times \text{Pensionable Service}}{70}$$
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Pensionable Salary: Maximum pensionable salary limit (Wage Ceiling) under EPS rules at present ₹15,000 is fixed (based on the average basic pay of the last 60 months).
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Pensionable Service: The number of years completed by the employee in the job. Here this period 15 years Is.
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70 (constant divisor): This is a fixed actuarial factor (denominator) of the EPS plan.
On substituting values in the formula as per the given description:
$$\text{Monthly pension} = \frac{15,000 \times 15}{70}$$
$$\text{Monthly pension} = \frac{2,25,000}{70} \approx ₹3,214.28$$
That is, after completion of 58 years of age, the employee Approximately ₹3,214 per month You will get pension for life.
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1. Minimum 10 years of service mandatory: To get the benefit of monthly pension under EPS, it is mandatory to complete at least 10 years of service. If there is less than 10 years of service, only the option of pension fund withdrawal (through scheme certificate or Form 10C) is available, monthly pension is not available.
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2. No additional weightage for less than 20 years of service: As per EPFO rules, if an employee completes 20 years or more of pensionable service, he gets a bonus weightage of 2 years. Since the service period here is 15 years, additional benefit of 2 years will not be added.
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3. Full pension at the age of 58: As per general rules, full monthly pension starts only after completion of 58 years of age.
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4. Rule of Early Pension (50 to 57 years of age): If an employee wants to start pension after 50 years of age and before 58 years (Early Pension), then the number of years reduced in 58 years will be per year. Pension is reduced at the rate of 4% (For example, there will be a permanent deduction of 32% on taking pension at the age of 50).