If you are a salaried employee contributing to EPFO, understanding the Employee Pension Scheme (EPS) is essential. EPS ensures you receive a pension after retirement, but the amount depends on specific calculations and conditions. Here’s everything you need to know.
1. Who Is Eligible for EPS Pension?
Not everyone who contributes to EPFO is automatically eligible for pension. To qualify:
You must contribute to EPS for at least 10 years.
Pension amount is based on total years of service and contributions.
Without meeting these conditions, you may not receive a pension, so eligibility is the first step.
2. EPS Pension Formula
The pension under EPS is calculated using a simple formula:
EPS Pension = (Average Salary × Pensionable Service) ÷ 70
Average Salary: Basic salary + Dearness Allowance (DA), calculated over the last 12 months of service.
Pensionable Service: Total years of contribution, maximum 35 years.
Maximum Pensionable Salary: Rs 15,000
For example:
Maximum pension share = 15,000 × 8.33 = Rs 1,250 per month
Maximum pension (35 years service) = 15,000 × 35 ÷ 70 = Rs 7,500 per month
3. Minimum Pension
EPS also provides a minimum pension for employees with shorter service or lower contributions:
Minimum Pension: Rs 1,000 per month
Experts note that this amount is often insufficient in today’s inflationary times, and there have been long-standing demands to increase it.
4. Early Pension Option
EPS allows employees to withdraw pension before the age of 58 under the Early Pension scheme:
Pension can be received starting at age 50.
However, withdrawing early reduces the pension by 4% for each year before 58.
This flexibility helps employees who need income before reaching the standard retirement age, though it comes at a reduced monthly amount.
5. How Contributions Are Split
EPS contributions are part of the overall EPF deposit from both the employee and employer:
Employee Contribution: 12% of Basic + DA
Employer Contribution: Also 12% of Basic + DA, but split into:
8.33% → Employee Pension Scheme (EPS)
3.67% → EPF
This means a portion of your salary automatically builds your pension fund, while the rest goes to your EPF account.
6. Maximum Pension Calculation Example
To illustrate the maximum pension possible under EPS:
Maximum pensionable salary: Rs 15,000
Maximum pensionable service: 35 years
Formula: 15,000 × 35 ÷ 70 = Rs 7,500 per month
So, if you contribute for full service years at the maximum salary, your pension can reach Rs 7,500 monthly after retirement.
7. Key Takeaways
Eligibility: Minimum 10 years of EPS contribution
Calculation: Average salary × years of service ÷ 70
Maximum Pension: Rs 7,500 per month
Minimum Pension: Rs 1,000 per month
Early Pension: Available from age 50, with 4% reduction per year before 58
Contribution Split: 8.33% of employer share goes to EPS
EPS is a critical component of retirement planning for salaried employees in India. By understanding how it is calculated, employees can estimate their future pension and plan their finances accordingly..jpg)
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