EPS: Every month, a portion of private employees’ salaries is directed into the EPF. The funds in the EPF accumulate interest annually. When employees retire, they receive this amount as a lump sum. Did you know that part of the monthly contribution made by employers to an employee’s EPF account is allocated to the Employees’ Pension Scheme (EPS)? So, what exactly is EPS? What advantages does it offer? Let’s explore these questions together.
Conditions for pension under EPS
The Employees’ Pension Scheme (EPS) is integrated with the EPF. The funds contributed to this scheme ensure that employees receive a monthly pension post-retirement. However, there are specific criteria to qualify for a pension from EPS. Employees need to have a minimum of 10 years of pensionable service. Once they retire at 58, they start receiving their pension. If an employee has less than 10 years of pensionable service, they won’t be eligible for a pension. Instead, the money in their EPS will be paid out in a lump sum at retirement.
Contribution to EPS account
Any employee who became a member of the EPF in the mid-1990s or later is automatically enrolled in the EPS. Under the EPF scheme, 12% of your basic salary is contributed to your EPF account each month. Your employer also adds 12% of your basic salary to your EPF account monthly. A fraction of the employer’s contribution, specifically 8.33% of your wages, is directed into your EPS account each month. The rest of the employer’s contribution is allocated to your EPF.
For EPS, the monthly pension for an employee is calculated using this formula: Pension = (Pensionable Salary x Pensionable Service) ÷ 70. Here, pensionable salary is defined as the salary from the last 60 months that has been contributed to EPS. Pensionable service is the total number of years worked under EPS. To illustrate this formula, let’s say your pensionable salary is Rs 15,000 and you have 30 years of pensionable service. Your pension would then be calculated as Rs 15,000 × 30 ÷ 70, which is approximately Rs 6,428 per month.
No pension on withdrawal of PF money
Many people in private jobs frequently change jobs. Some leave their jobs mid-term to pursue higher education. Such individuals withdraw their PF deposits. However, those who change jobs have the option of transferring their PF funds to another employer. Withdrawing PF funds affects your pension eligibility. If you withdraw PF funds before completing 10 years of pensionable service, you are no longer eligible for pension under the EPS.