EPS Pension Calculation: If you are a salaried employee, having a PF account is essential. PF accounts are managed by the EPFO. Notably, a new salary limit of ₹25,000 for mandatory coverage under the EPFO came into effect on Thursday. This increased salary limit could yield greater post-retirement benefits for many employees, including the monthly pension received under the Employee Pension Scheme (EPS).
The EPS pension is calculated based on the pensionable salary and the duration of the employee’s contributions to the EPS. The higher the pensionable salary and the longer the service period, the higher the monthly pension received after retirement. Pensionable salary is calculated based on the average salary earned during the 60 months prior to exiting the EPS.
The EPFO has implemented the new salary limit of ₹25,000. To fully benefit from this change, employees must complete five years of contributions based on the new salary level. Under the new system, the maximum EPS benefits and maximum pension will be available only to employees earning a salary of ₹25,000 or more.
How much pension will you receive based on the ₹25,000 salary limit?
The EPS pension increases with the employee’s pensionable service period. Therefore, to receive a monthly EPS pension of ₹12,500 under the new ₹25,000 salary limit, it is essential—in addition to the service duration—that the basic salary during the 60 months prior to exiting the EPS be ₹25,000 or higher.
According to calculations, if your pensionable service is 33 years and your pensionable salary is ₹25,000, your estimated monthly EPS pension could be ₹12,500. In this scenario, while the service period for the pension is 33 years, the EPS pension calculation is based on a 35-year tenure. For this reason, under the EPS 2026 scheme, an extra bonus of two years will be added to the service duration after completing 20 years of pensionable service.
If someone has worked for 33 years and made less than ₹15,000 a month, their pension is about ₹7,500. But if they make more than ₹25,000 a month, their pension could be more. Similarly, for a 10-year tenure, the estimated EPS pension based on the ₹15,000 limit was ₹2,143, whereas under the new ₹25,000 limit, it could be ₹3,571. For 15 years of service, the pension could be ₹3,124 under the old limit and ₹5,357 under the new limit.
Based on this calculation, for 20 years of service, the pension could be ₹4,714 under the old limit and ₹7,857 under the new limit. For 25 years of service, it could be ₹5,786 under the old limit and approximately ₹9,643 under the new limit.
What should be done to get a higher EPS pension?
To secure a higher EPS pension under the new ₹25,000 salary limit, it is important to understand how the salary limit affects the pension calculation. The EPS pension is calculated using the formula EPS Pension = Pensionable Salary × Pensionable Service Period ÷ 70. Here, ‘pensionable salary’ refers to the average salary received during the 60 months prior to exiting the EPS. The maximum pensionable salary can now reach the new limit of ₹25,000.
Previously, this limit was ₹15,000; it has now been increased by ₹10,000. This will enable eligible individuals to receive a higher pension. The ‘pensionable service period’ refers to the number of years an employee has contributed to the EPS. For the pension calculation, the figure of 70 is used, based on the life expectancy of 70 years as determined by the government.
Eligibility for EPS Pension
Most employees who were EPS members prior to September 1, 2014, and were contributing based on the existing salary limit will continue their EPS membership. Previously, 8.33% of the ₹15,000 salary limit—amounting to ₹1,250—was allocated to the EPS from the employer’s contribution. With the implementation of the new ₹25,000 salary limit, this contribution will rise to ₹2,083, which is equivalent to 8.33% of the new limit.
It is worth noting that employees who started jobs after September 1, 2014, with salaries exceeding ₹15,000, were previously ineligible for EPS membership. With the increase in the salary limit, employees earning between ₹15,000 and ₹25,000 will now be able to join the EPS scheme. Following the government’s decision to raise the EPS limit, it will become mandatory for employees earning ₹25,000 or less to become EPS members alongside their EPF membership. However, to receive a pension under the EPS, an employee must complete at least 10 years of pensionable service.
Employees Retiring Within 5 Years
Employees scheduled to retire within the next five years will not receive the full benefit of the new EPS salary limit; instead, they will receive the benefit of the increased pension only partially. The extent of the benefit derived from the new salary limit will depend on the number of months an employee has contributed under the scheme. In other words, the longer the contribution period under the new system, the greater the benefit received. To qualify for an EPS pension, it remains mandatory for an employee to complete at least 10 years of service and EPS contributions.