If you are a salaried employee contributing to the EPF every month, it’s important to understand EPS – Employee Pension Scheme. This scheme ensures that after retirement, you receive a pension to support your post-work life. Here’s everything you need to know, including how your pension is calculated.
1. What is EPS?
EPS stands for Employee Pension Scheme, a part of EPF contributions. Unlike EPF, which is mainly a retirement savings account, EPS is specifically for post-retirement pension.
Only employees who contribute for at least 10 years are eligible.
Pension amount depends on your salary and years of service.
The scheme is managed by EPFO to ensure long-term financial security.
2. Who is Eligible for EPS Pension?
Not everyone automatically gets a pension from EPS. To be eligible, you must:
Contribute to EPF for a minimum of 10 years.
Be employed in the organized sector.
Reach the pension age of 58 years (or opt for early pension from 50 years).
If these criteria are met, you can calculate your pension using a standard formula.
3. How EPS Pension is Calculated
The pension formula is straightforward:
EPS Pension = (Average Salary × Pensionable Service) ÷ 70
Average Salary: Basic salary + DA (calculated over the last 12 months)
Pensionable Service: Total years of contribution (maximum 35 years)
Example: Maximum Pension
Maximum pensionable salary: Rs 15,000
Maximum pensionable service: 35 years
EPS = 15,000 × 35 ÷ 70 = Rs 7,500 per month
This means the maximum pension one can get under EPS is Rs 7,500/month.
4. Minimum Pension
The minimum pension provided by EPFO is currently Rs 1,000/month.
Many experts argue this amount is insufficient to cover basic living expenses in today’s inflationary environment.
There have been demands to increase the minimum pension for several years.
5. Early Pension Option
While the standard pension age is 58, employees have an option for early pension:
Pension can be taken from 50 years of age.
However, taking pension early reduces the amount by 4% for each year before 58.
This allows flexibility but comes at the cost of lower monthly payouts.
6. Contribution Structure: How Your EPS Fund is Built
Every month, 12% of your Basic + DA is deposited into EPF. The employer contributes an equal amount, but it is split differently:
8.33% goes to EPS
3.67% goes to EPF
This ensures that part of your retirement savings is specifically earmarked for your pension, while the rest grows in your EPF account.
7. Maximum Pension Example
To understand how EPS works in real terms:
Suppose you earn Rs 15,000 as pensionable salary
Work for 35 years
Your pension calculation:
EPS = 15,000 × 35 ÷ 70 = Rs 7,500/month
So, with full contributions and maximum years, Rs 7,500 per month is your highest possible EPS pension.
8. Key Takeaways
Minimum contribution period: 10 years
Maximum pensionable salary: Rs 15,000
Maximum pensionable service: 35 years
Normal pension age: 58 years
Early pension age: 50 years (with 4% reduction per year)
EPS provides financial security post-retirement, but planning your career and contribution period is crucial to maximize benefits.
Final Word: Know Your Pension, Plan Your Retirement
By understanding the EPS formula and contribution rules, employees can plan their retirement income better. Check your last 12 months’ salary and years of service, and calculate your expected pension. The earlier you start planning, the better your retirement will be.
.jpg)
click and follow Indiaherald WhatsApp channel