If you are a salaried employee contributing to the EPF every month, it’s important to understand
EPS – Employee Pension Scheme. This scheme ensures that after retirement, you receive a pension to support your post-work life. Here’s everything you need to know, including how your pension is calculated.
1. What is EPS?
EPS stands for
Employee Pension Scheme, a part of EPF contributions. Unlike EPF, which is mainly a retirement savings account, EPS is
specifically for post-retirement pension.Only employees who contribute for
at least 10 years are eligible.Pension amount depends on your
salary and
years of service.The scheme is managed by EPFO to ensure long-term financial security.
2. Who is Eligible for EPS Pension?
Not everyone automatically gets a pension from EPS. To be eligible, you must:Contribute to EPF for a minimum of
10 years.Be employed in the
organized sector.Reach the
pension age of 58 years (or opt for early pension from 50 years).If these criteria are met, you can calculate your pension using a standard formula.
3. How EPS Pension is Calculated
The
pension formula is straightforward:
EPS Pension = (Average Salary × Pensionable Service) ÷ 70Average Salary: Basic salary + DA (calculated over the last 12 months)
Pensionable Service: Total years of contribution (maximum 35 years)
Example: Maximum Pension
Maximum
pensionable salary: Rs 15,000Maximum
pensionable service: 35 years
EPS = 15,000 × 35 ÷ 70 = Rs 7,500 per monthThis means the
maximum pension one can get under EPS is
Rs 7,500/month.
4. Minimum Pension
The
minimum pension provided by EPFO is currently
Rs 1,000/month.Many experts argue this amount is insufficient to cover basic living expenses in today’s inflationary environment.There have been
demands to increase the minimum pension for several years.
5. Early Pension Option
While the standard pension age is 58, employees have an option for
early pension:Pension can be taken from
50 years of age.However, taking pension early
reduces the amount by 4% for
each year before 58.This allows flexibility but comes at the cost of lower monthly payouts.
6. Contribution Structure: How Your EPS Fund is Built
Every month,
12% of your Basic + DA is deposited into EPF. The employer contributes an equal amount, but it is split differently:
8.33% goes to
EPS3.67% goes to
EPFThis ensures that part of your retirement savings is
specifically earmarked for your pension, while the rest grows in your EPF account.
7. Maximum Pension Example
To understand how EPS works in real terms:Suppose you earn
Rs 15,000 as pensionable salaryWork for
35 yearsYour pension calculation:
EPS = 15,000 × 35 ÷ 70 = Rs 7,500/monthSo, with full contributions and maximum years, Rs 7,500 per month is your
highest possible EPS pension.
8. Key Takeaways
Minimum contribution period: 10 years
Maximum pensionable salary: Rs 15,000
Maximum pensionable service: 35 years
Normal pension age: 58 years
Early pension age: 50 years (with 4% reduction per year)EPS provides
financial security post-retirement, but planning your career and contribution period is crucial to maximize benefits.
Final Word: Know Your Pension, Plan Your Retirement
By understanding the EPS formula and contribution rules, employees can
plan their retirement income better. Check your
last 12 months’ salary and years of service, and calculate your expected pension. The earlier you start planning, the better your retirement will be.