What is the formula to calculate EPS pension Further, the EPFO has released a circular clarifying the method of pension computation for those who opt for higher EPS pension. Read on to know the formula for EPS pension calculation
A member of the Employees’ Provident Fund Organisation (EPFO) is eligible to receive pension if he/she is part of the Employees’ Pension Scheme (EPS). The pension under EPS starts from the age of 58 years for an individual.Further, certain EPF members are eligible to apply for higher pension from EPS. The deadline to apply for a higher EPS pension is July 11, 2023. The EPFO will no longer accept applications for higher EPS pensions after July 11, 2023.
Formula for EPS pension calculation
As per the EPF law, the formula to calculate EPS pension is as follows:
Pensionable salary X Pensionable service period divided by 70
Pensionable Salary: The pensionable salary refers to average of basic salary of an individual for 5 years from the date of retirement.
Pensionable service period: The pensionable service refers to the working period of an employee while he/she was making contributions to the EPF and EPS account.
The formula to calculate the EPS pension was revised by the EPFO in 2014. Prior to amendment , the average basic salary of last one year of an individual was taken as pensionable salary.
Members of the EPS should keep in mind that if you have joined the scheme prior to 2014, a pro-rata calculation will be used to determine your monthly pension. An example will help to clarify the calculation.
Let's say that you enrolled in the EPS scheme in January 2010 and quit working in February 2025. As a result, up until August 2014, you would have served for 4 years and 7 months. The rest of the service period spans from September 2014 till February 2025, or 10 years and 5 months. Additionally, let's assume that the pensionable wage is Rs 6,500 up until August 2014 and Rs 15,000 starting on September 1, 2014.
The calculation of pension will be made for the period between January 2010 and August 2014 as follows:
(Rs 6,500 X 5 years)/70 = Rs 464. 28
The pension for the period between September 2014 and February 2025 will be calculated as follows:
(Rs 15,000 X 10 years)/70 = Rs 2,142.85
Thus, the total pension payable to you will be Rs 2,607.13 (Rs 464.28 + 2142.85).
In 2014, the EPFO hiked the wage ceiling limit from Rs 6,500 to Rs 15,000. Hence, all the pension calculation and EPS contributions Rs 15,000 will be considered.
What if you are opting for higher EPS pension
It may happen that you are eligible for higher EPS pension. The EPFO has released the circular dated June 1, 2023 clarifying that those who have retired prior to September 1, 2014, then old formula (prior to amendment) will be used to calculate the pension.
For this who have retired on or after September 1, 2014, then new formular will be used to calculate the pension.
Also Read: EPFO releases circular on pension computation method for higher EPS pension
Calculation of early pension
The EPS permits early retirement at age 50. Hence, an individual has an option to opt for early pension from the age of 50 years. However, in these circumstances, the pension amount will be decreased by 4% for each year that the pensioner is under the age of 58.
Also Read: How to calculate EPS pension
What if a person has not rendered 10 years of contributory service?
It may happen that an individual service period is less than 10 years on the date of leaving the EPS scheme. In such a case, he or she is eligible for a lump sum withdrawal.
Minimum and maximum amount of pension
The minimum pension amount under EPS is Rs 1,000 per month, and the highest pension amount that you are eligible to receive is Rs 7,500 per month, on the condition that no pension contribution is paid on amounts beyond the statutory ceiling.
When is an employee eligible to receive pension?
If a person joins the Employees' Pension Scheme, 1995 on or after November 16, 1995, they will be eligible for the pension benefit. From September 2014, an individual joining the EPF scheme, is eligible to join the EPS if their basic salary does not exceed Rs 15,000 per month.
Further, in order to qualify for a EPS monthly pension, an employee must have a minimum of 10 years of contributed service. This means that the an individual must actively contribute to the EPS account for a minimum of ten years. The total number of years of employment can be with a single employer or a variety of employers.
How much contribution is made to the EPS account?
According to the scheme rules, a portion of the employer's provident fund contribution is diverted to the pension plan. For this reason, the maximum amount of wages on which the contribution is made currently, Rs. 15,000 per month.
The EPS contribution will be made as follows beginning September 1, 2014 is 8.33% of Rs 15,00= Rs 1,250.
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This story originally appeared on: India Times - Author:Faqs of Insurances
