Employees Pension Scheme

What It Is?

EPS is operated by the Employees’ Provident Fund Organization or EPFO, the Employees Pension scheme aims to provide pension to the employees of the organized category. Employees who have continuous contributory membership of EPF for 10 years can be beneficiaries under this scheme.

The scheme starts generating the monthly pensions once the beneficiary reaches the retirement age of 58.

Background of EPS

The Employees Pension Scheme or the EPF pension scheme was launched in the year 1995. The beneficiaries of the Miscellaneous Provision Act of 1952 and the Employees Provident Fund automatically fall under the eligibility list of the EPS scheme.
Unlike the contribution in EPF, the pension contribution in EPF is not shared by the employees and employers. Only 8.33% from the employers’ share of 12% goes to EPS pension (Max – 1250 rs).

Who is Eligible to Obtain Benefits of EPS?

  1. He should be a member of EPFO
  2. He should have completed 10 years of service
  3. He has reached the age of 58
  4. He can also withdraw his EPS at a reduced rate from the age of 50 years

How to Calculate your Pension Amount?

The monthly pension amount under the Employees Pension Scheme is decided based on the pensionable salary and the pensionable service period of the member employee.

The amount can be calculated using the below formula.

Monthly EPS pension = Pensionable salary (annual) * (Pensionable Service (in years) / 70)

Pensionable Salary

Pensionable salary is the average monthly salary in the last 12 months before the member exits the organization

If there are non-contributory periods in the last 12 months of the employment, the non-contributory days in the month will not be considered and the benefit of those days would be given to the employee.

Ok Let me explain you the meaning of above line with an example.
Assume that the person X takes up the job on 3rd of the month then his salary of 28 days will be divided as per each day’s pay and then multiplied with 30 to calculate the total monthly salary for the month.
If the salary of the person is ₹ 15,000, the salary for the person would be ₹ 14,000 for 28 days ( ₹ 500 per day less for two days). However, the monthly salary considered for EPS would be for 30 days, i.e. ₹ 15,000

The Most important Point is – The maximum pensionable salary is limited to ₹ 15,000 every month.
This means Maximum 8.33% of 15,000 is Rs. 1250 Per month can be deposited in EPS by EPFO.

Pensionable Service

The actual service period of the member is considered as the pensionable service. Service periods under different employers are added at the time of calculating the pensionable service period. The employee has to get the EPS Scheme Certificate issued and submit it to the new employer every time he switches a job.

It is very nice to hear that the employee gets a bonus of 2 years after completing 20 years of service.

If the member withdraws the EPS corpus before completing the service period of 10 years and joins another company, Then he will have to start fresh for contributing to the EPS account and the service period will also be set as zero at the start.

The pensionable service period is considered on a 6 months basis. The minimum pensionable service period is 6 months. If the service period is 18 years 2 months, the pensionable service period considered is 18 years. However, if the service duration is 18 years and 10 months, the pensionable service period is taken as 19 years.

If a person worked for 25 years and his average monthly salary was Rs. 15,000/- then EPS will be.
EPS = 15,000*(25/70)
EPS =  5,357 Rs/Month 

Where to Check EPS Amount

A member can check the amount accumulated in his Employees’ Pension Scheme (EPS) account in his EPF Passbook. The last column in the passbook shows the EPS contribution deposited by the employer every month in the account of the member.

Employee Pension Scheme

Key Points to remember about EPF Pension

  1. All contributions made in the Employees’ Pension Scheme (EPS) account are to be done by the employer
  2. The employer makes a contribution of 8.33% of the employee’s pay for EPS (Max 1250 per month)
  3. The employee’s pay consists of basic wages with dearness allowance, retaining allowance and admissible cash value of food concessions
  4. All applicable contribution cost has to be borne by the employer
  5. The minimum service period is 10 years to be eligible for availing pension benefits
  6. As per the scheme, the retirement age of the person is fixed at 58 years of age
  7. One  can also defer his pension for two years (up to 60 years of age) after which he will get a pension at an additional rate of 4% for each year.

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