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The biggest question regarding retirement and social security in the minds of crores of employees working in the private sector is that how much pension they will get every month under the Employees Pension Scheme (EPS-95) after years of service. If an employee has worked continuously for 25 years in the organized sector and his last basic salary is ₹ 25,000 per month, then what will be his monthly pension after retirement?
As per the rules of the Employees Provident Fund Organization (EPFO), pension is calculated not only on the total basic pay but also on the basis of statutory rules of EPS, pensionable service period and wage ceiling. Let us understand this entire mathematics in simple language.
When an employee’s EPF account is opened, 12 percent of his basic salary and dearness allowance (DA) is deposited directly into his EPF account. The employer (company) also contributes an equal contribution of 12 percent.
However, out of the 12% employer contribution:
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8.33% share: Goes into the Employees’ Pension Scheme (EPS) (₹1,250 per month subject to a maximum statutory limit of ₹15,000).
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3.67% share: Deposited in EPF account.
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0.50% share: Goes to EDLI (insurance scheme).
This accumulated contribution of 8.33% is given to the employee as lifelong monthly pension after he completes the age of 58 years.
As per the rules decided by EPFO, monthly pension is calculated by the following formula:
Monthly Pension = (Pensionable Salary × Pensionable Service Period) ÷ 70
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Pensionable Salary: The average basic salary of the last 60 months (5 years) before leaving the job or retirement is considered.
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Pensionable Service: Total length of service (in years) rendered by the employee.
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2 Years Service Bonus: As per EPFO rules, if the total pensionable service of an employee exceeds 20 years or more, he is given a weightage (bonus) of 2 additional years. That means, after working for 25 years, the service period will be counted as 27 years (25 + 2).
Under the current 2014 rules of EPFO, the maximum wage ceiling for calculating pension is fixed at ₹ 15,000 per month. If the company and the employee have not opted for higher pension, then even though the actual basic salary is ₹ 25,000, the pensionable salary will be considered to be a maximum of ₹ 15,000.
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Pensionable Salary: ₹15,000 (maximum limit)
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Pensionable service period: 25 years + 2 years bonus = 27 years
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Calculation: (15,000 × 27) ÷ 70 = ₹5,785.71 per month
Thus, under normal rules, on completion of 25 years of service, the employee will get approximately ₹5,786 per month Will get lifetime pension.
If the employee or employer has opted for Higher Pension on Actual Salary as per the Supreme Court order and the same has been approved by EPFO, then the calculation will be on the full average basic salary of ₹ 25,000:
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Pensionable Salary: ₹25,000 (Actual Average Basic)
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Pensionable service period: 27 years
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Calculation: (25,000 × 27) ÷ 70 = ₹9,642.85 per month
With the option of higher pension, the monthly pension increases to approximately ₹9,643 per month It will be done. However, for this, the additional difference amount from the EPF fund is transferred to the EPS fund during the service period.
To avail the benefit of monthly pension, it is mandatory for the employees to follow some basic rules:
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Minimum 10 years service: To get EPS pension, active contribution to EPFO for at least 10 years is required. Only EPS withdrawal (scheme certificate or refund) is available for less than 10 years of service.
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Pension commencement age: Regular monthly pension starts on completion of 58 years of age.
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Early Pension: Premature pension can be taken even after the age of 50, but for the number of years before the age of 58, the pension amount is deducted at the rate of 4% (penalty) per year.
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Deferred Pension: If an employee starts pension at the age of 60 instead of 58, he gets an additional benefit of 4% per year.
Employees can view the exact details of their total pensionable service period and accumulated amount anytime by downloading the e-passbook and service history on their ‘UAN Member Portal’ or ‘UMANG App’.