EPS, or the Employee Pension Scheme, launched in 1995 to help employees in organised sectors save for retirement. All employees eligible for the EPF scheme automatically qualify for EPS.
What is Employee Pension Scheme?
The Employees' Pension Scheme is a social security initiative offered by the Employees’ Provident Fund Organisation (EPFO). This scheme aims to help employees in the organised sector, providing a pension post-retirement at 58. To avail benefits, an employee must have completed at least 10 years of service. Both existing and new EPF members are eligible for EPS scheme.
Both the employer and the employee contribute 12% of the employee's pay, with the entire employee share going to EPF. Out of the employer's share, 8.33% go towards Employees’ Pension Scheme (EPS), while 3.67% is allocated to EPF every month.
As you plan for the future, remember that FDs can be a valuable asset alongside your PF contributions. Use FDs for specific goals like a down payment, education expenses, or to supplement retirement savings.
Benefits of Employee Pension Scheme
- Eligibility for pension benefits start when a member retires at the age of 58 years. A minimum service period of 10 years by the age of 58 is mandatory for availing pension benefits.
- If a member can't complete 10 years of service before turning 58, they can withdraw the entire sum at the age of 58 years using Form 10C. Monthly pension benefits are not available in this case.
- If an EPFO member becomes permanently disabled, they get a monthly pension, no matter their service period.
- In case of the member's unfortunate demise, it offers pension benefits to the member's family, whether it happens before or after the pensionable service period.
How to calculate your pension under EPS
The pension amount depends on member’s pensionable salary and service duration. Here is the formula for calculating monthly pension income:
Member’s Monthly Pension = (Pensionable salary x Pensionable service)/70 |
1. Pensionable salary
Pensionable salary refers to the average monthly earnings in the last 60 months preceding the member's exit from the EPS.
In case of non-contributory periods within the last 60 months of employment, the non-contributory days won't be considered, and the corresponding benefits will be granted to the employee. For example, if someone starts a job on the 3rd of the month and assuming a person's salary is Rs. 15,000, the salary for 28 days would be Rs. 14,000 (Rs. 500 per day less for two days). However, the monthly salary considered for EPS would be for 30 days, i.e., Rs. 15,000.
The maximum pensionable salary is capped at Rs. 15,000 per month.
Given that the employer contributes 8.33% of this salary to the employee’s EPS account, the monthly deposit in the employee’s EPS account is:
Rs. 15000 x 8.33/100 = Rs. 1250
2. Pensionable Service
The pensionable service is referred to actual period of service for the member. Service periods across different employers are considered when calculating the pensionable service period. The employee must obtain the EPS Scheme certificate and submit it to the new employer whenever they switch jobs.
If a member withdraws the EPS amount before completing 10 years and joins another company, they must restart contributing to the EPS account, and the service period will be reset to zero.
The pensionable service period is assessed on a 6-month basis, with a minimum of 6 months. For instance, if the service period is 7 years and 3 months, the considered pensionable service is 7 years. However, if the service duration is 7 years and 11 months, the pensionable service period is considered as 8 years.
