The Employees’ Provident Fund (EPF) is not only a means of lump-sum savings, but it also provides a strong financial foundation for old age in the form of the Employees’ Pension Scheme (EPS). A significant portion of the contributions deducted from monthly salaries goes into the EPS account. Today, we will learn in detail what EPS is, its benefits, and the unique formula used to calculate your monthly pension.
What are the requirements for a pension under EPS
The Employees’ Pension Scheme (EPS) is an integral part of the EPF. The amount deposited in this scheme is received by the employee as a monthly pension after retirement. Certain strict conditions must be met to receive a pension under EPS:
The employee must have completed a minimum of 10 years of pensionable service.
The employee begins receiving a pension upon retirement at the age of 58.
If an employee’s pensionable service is less than 10 years, they will not receive a monthly pension. In such a case, the amount deposited in his EPS will be given to him in a lump sum upon retirement.
Also Read-PF Holders Alert-Recover Your UAN Instantly with EPFO’s ‘Know Your UAN’ Feature
How much contribution goes into the EPS account
Any employee who joined the EPF in the mid-1990s or later automatically becomes an EPF member. Under EPF, 12% of your basic salary is deposited into your EPF account every month. Your employer also contributes 12% of your basic salary to your EPF account every month. It is important to note that a significant portion of the employer’s contribution, which amounts to 8.33% of your salary, is deposited into your EPS account every month. The remaining portion of the employer’s contribution goes into your EPF.
Powerful Formula for Calculating Monthly Pension
Under EPS, an employee’s monthly pension is determined by a specific formula:
Pension = (Pensionable Salary * Pensionable Service) / 70
Here, pensionable salary refers to your salary for the last 60 months, which has been contributed to EPS. Pensionable service represents the total number of years completed under EPS. This is easy to understand with an example: Suppose your pensionable salary is ₹15,000 and you have completed 30 years of pensionable service. According to the formula, your monthly pension will be: ₹15,000 × 30 ÷ 70, which is approximately ₹6,428 per month. This formula clearly indicates how fixed your pension will be.
Pension Eligibility Upon Withdrawal of PF
Many private employees change jobs frequently or leave mid-life due to studies or other reasons. Such individuals often withdraw their PF deposits. However, those who change jobs have the option of transferring their PF funds to another employer. Withdrawal of PF funds severely impacts your pension eligibility. If you withdraw PF funds after completing 10 years of pensionable service, you are no longer entitled to a pension under the EPS. Therefore, it is extremely important to avoid PF withdrawals to avail pension benefits.
Also Read-Massive PAN Rule Change: Aadhaar Linking Mandatory Before December 31, 2025