Pension Update: Big news for pensioners. For millions of employees in the private sector, the EPFO’s Employees’ Pension Scheme (EPS) serves not only as an investment but also as a crucial safety net after retirement. While employees typically grasp the PF deductions reflected in their passbooks, they often find themselves perplexed about the amount recorded in the pension column and the associated terms.
What makes EPS significant for employees?
The private sector lacks the same pension advantages as government positions, making the EPFO’s EPS-95 scheme a valuable resource. When an employee contributes to the PF during their employment, a portion of that contribution is allocated to the pension fund. This fund then provides a source of monthly income post-retirement. Nevertheless, many employees are uncertain about when they will access these funds and how the calculations are made. The primary goal of EPS is to guarantee financial independence in later years.
Two crucial criteria for pension eligibility
To qualify for a monthly pension under the EPS, you must fulfill two essential legal criteria. You need to have a minimum of 10 years of pensionable service to be eligible for a monthly pension. It’s vital to remember that if you switch jobs, you should transfer your PF funds rather than withdraw them. Withdrawing before completing 10 years resets your service history to zero, making you ineligible for a lifetime pension. The typical age to start receiving the full pension under EPS is 58 years. However, in certain situations, you can access your pension even after reaching 50, though the conditions differ.
Understanding the funds in your pension account
12% of an employee’s basic salary and DA is directed into the pension fund, with the employer matching this contribution. However, from the employer’s 12% contribution, 8.33% is directly allocated to the EPS (Employment Provident Fund) account.
Currently, the maximum limit for pensionable salary is set at Rs 15,000. This means that even if your salary is Rs 1 lakh, your contribution to the pension fund will be calculated at 8.33% of Rs 15,000, or Rs 1,250. This is why even those with high salaries cannot exceed their EPS pension. When you start your pension directly impacts your monthly amount. If you start after the age of 50 but before 58, it’s considered a premature pension. This reduction involves a 4% reduction in your pension amount each year. This reduction is permanent.
Benefits of Deferred Pension
If you don’t start your pension after 58 and postpone it until age 60, the EPFO provides you with an additional 4% bonus per year. This means that starting your pension at age 60 could result in approximately 8% more monthly benefits. If an employee leaves their job or withdraws their entire PF balance before completing 10 years of service, they are no longer entitled to a monthly pension. In such cases, the EPFO offers a withdrawal benefit. This amount is determined based on a specific service table and is calculated by multiplying the years of service by the salary.
This lump sum is much smaller and temporary than a lifetime monthly pension. The EPS pension is your future support. Therefore, whenever you change jobs, always obtain a pension scheme certificate or keep updating your service history through your UAN. Completing 10 years of service and remaining patient until the age of 58 can ensure a respectable pension.
