EPS Pension Calculator: Pension will increase by 66.6% as soon as Rs25,000 salary limit is implemented, complete mathematics of job for 10 to 35 years

Revision of the wage ceiling of EPS-95 (Employees’ Pension Scheme) is a long awaited topic for crores of organized sector employees under the Employees’ Provident Fund Organization (EPFO). At present the maximum limit of pensionable salary is fixed at ₹ 15,000 per month, recommendations and proposals to increase it to ₹ 25,000 are under consideration.

If the government increases this statutory limit from ₹15,000 to ₹25,000, the pensionable salary base will directly increase by 66.67%. Its direct and proportionate benefit will be visible on the monthly pension received by the employees after retirement. Let us understand how EPS pension is calculated and what actual impact it will have on the pockets of those who have completed 10 to 35 years of service.

The monthly pension received under the Employees’ Pension Scheme 1995 is determined by a certain formula prescribed by EPFO:

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

There are two main variables in this formula:

• Pensionable Salary: Average basic pay of the last 60 months before leaving service (currently capped at a maximum of ₹15,000).

• Pensionable Service: Total years of employment. If the employee completes 20 years or more of service, he is given 2 additional years of bonus years.

When the capping of pensionable salary increases from ₹15,000 to ₹25,000, the base amount in the formula will be recorded as ₹25,000 instead of ₹15,000.

$$\frac{25,000 – 15,000}{15,000} \times 100 = 66.67\%$$

That means, even without any other changes, there will be a direct increase of exactly 66.67% in the pension of each employee.

Comparative details of monthly pension under the current limit of ₹15,000 and the proposed limit of ₹25,000 based on different service periods:

Note: As per EPS rules, maximum pensionable service is considered to be 35 years only, hence on 35 years of service the maximum pension will increase from ₹7,500 to ₹12,500.

The entire 12% employee’s contribution to the Employees’ Provident Fund goes directly into the EPF account. The 12% employer’s (company’s) contribution is divided as follows:

At present, at the ceiling of ₹15,000, the employer can deposit a maximum of ₹1,250 per month (8.33% of ₹15,000) in EPS. If this limit is ₹25,000:

• The monthly contribution towards EPS will increase to ₹2,083 (8.33% of ₹25,000).

• This means that out of the total contribution of the employer, ₹ 833 more will be deposited in the pension fund every month, which will strengthen the pension corpus.

1. Retrospective or prospective effect: The rule of increasing wage ceiling generally applies from the date of issue of notification onwards. How much of this benefit will be applicable to previously retired employees will depend on the terms of the final Government Gazette notification.

2. Impact on EPF fund: Increasing contribution to EPS partially reduces the employer’s share going into the EPF account, but in return provides a guaranteed and secure monthly pension for life.

3. Higher pension option: This amendment will be in addition to the Supreme Court’s decision on Higher Pension (Higher Pension on Actual Salary) for all those general employees whose basic salary is more than ₹ 15,000 but they contribute only at the standard EPF ceiling.