EPS Pension: If you are working and your salary contributes to the EPS (Employees’ Pension Scheme), you could receive a pension upon retirement. However, it’s important to note that this pension is not based on your final salary. The calculation primarily takes into account two key factors: your pensionable salary and your pensionable service. Additionally, when you choose to start your pension also plays a role.
How is the pension calculated?
There is a specific formula for determining the EPS pension amount.
Monthly pension = (Pensionable salary × Pensionable service) ÷ 70
Pensionable salary typically refers to the average EPS salary over the last 60 months of service. Pensionable service indicates the total number of years you have contributed to EPS. Generally, a minimum of 10 years of pensionable service is required to qualify for a monthly pension.
A simple example:
Let’s say your pensionable salary is Rs 15,000 and you have worked for 20 years. Using the formula:
Rs 15,000 × 20 ÷ 70 = approximately Rs 4,286 per month
In this scenario, your monthly EPS pension would be around Rs 4,286. However, if you complete 20 years or more of pensionable service, there is a provision to add an extra 2 years to the calculation. Therefore, the final calculation will depend on your eligibility and the relevant EPS regulations.
What if the salary is Rs 50,000?
Many people believe that if their salary is Rs 50,000, their pension will be calculated based on that figure. This is a crucial point to understand. If you have not opted for a higher pension, the standard EPS system imposes a cap of Rs 15,000 per month on the pensionable salary. For instance, if your actual salary is Rs 50,000, but the applicable salary for EPS is Rs 15,000, the standard formula will use Rs 15,000 instead of Rs 50,000. This indicates that a higher salary does not automatically lead to a higher EPS pension.
What happens if you select the higher pension option?
Some eligible individuals may choose to opt for a higher pension. In these cases, the pensionable salary may be calculated based on the actual pay details. However, certain criteria need to be fulfilled for this to occur. Thus, it is incorrect to assume that every employee earning a high salary will automatically qualify for an EPS pension based on their actual earnings.
What happens if you decide to take your pension at the age of 50?
An employee eligible under EPS can start receiving their pension at 50. However, there is a downside: the standard retirement age is 58. If you begin your pension before this age, the amount will be reduced. For each year you take the pension earlier, there is a 4% deduction. For instance, if your pension is Rs 5,000 per month at 58, starting it at 57 would mean you receive about 4% less, bringing it down to around Rs 4,800.
If you opt to start at 50, the deduction will accumulate over several years, leading to a significantly lower monthly pension. Therefore, it’s not advisable to begin your pension just because you think you can start receiving funds at 50.
Advantages of taking pension after 58
On the flip side, you can also benefit by starting your pension after the age of 58. According to the relevant regulations, you can defer your pension until you reach 60. Each year you delay results in a 4% increase in your pension amount. For example, if your pension at 58 is Rs 5,000, deferring it for one year could increase it to approximately Rs 5,200 due to the 4% rise. Waiting for two years could enhance it even more.
Additional benefit after 20 years of service
If you have 20 years or more of pensionable service, there is a provision to add an extra 2 years for EPS calculation purposes. For instance, with 20 years of service, you might be able to consider 22 years for pension calculations. This could lead to a slightly higher pension than the standard 20 years. However, this is also contingent on the relevant EPS rules and your eligibility.