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Personal Finance

Employee Pension Scheme (EPS)

The EPF pension or EPS is a pension scheme for the employees of the organized sector. This pension scheme gives a guaranteed monthly pension after retirement. Employee Provident Fund Organisation (EPFO) manages the pension account of all those who are contributing to EPF, including private trusts.

Eligibility Criteria:

In order to be eligible for availing benefits under the Employees’ Pension Scheme (EPS), an individual has to fulfill the following criteria:

  1. Should be a member of EPFO
  2. Should have completed 10 years of service
  3. Has reached the age of 58

A person satisfying the above criteria can:

  • Withdraw his/her EPS at a reduced rate from the age of 50.
  • Defer his/her pension for two years (up to 60 years of age) after which he will get a pension at an additional rate of 4% for each year.

How it works:

  • 8.33% of the employer’s monthly contribution from the EPF goes into EPS. Monthly contribution to EPS is restricted to 8.33% of Rs 6,500 or Rs 541 p.m. and from Sep 2014 Rs 1,250 (8.33% of 15,000). The government’s contribution is 1.16% of the worker’s monthly wages if the salary is less than Rs 6,500.
  • Unlike the EPF contribution, the EPS part (8.33% out of 12% contribution from your employer or Rs 541 and after Oct 2014 Rs 1,250 whatever is minimum) does NOT earn any interest.
  • A lifelong pension is available to the member and upon his/her death, members of the family are entitled to the pension.
  • Pension is called Superannuation Pension if one gets a pension on retirement or on attaining the age of 58 years
  • An employee can start receiving the pension under EPS only after rendering a minimum service of 10 years and attaining the age of 58/50 years.
  • One can apply for EPS Pension from a date immediately following the date of completion of 58 years of age notwithstanding that the person has retired or
    ceased to be in employment before that date.
  • Maximum Pension one can get is Rs 7,500 per month.
  • Minimum Pension one can get is Rs 1,000 per month.
  • Maximum service for the calculation of service is 35 years.
  • The fraction of service for six months or more is treated as one year and the service less than six months shall be ignored. So, 9 years and 6 months will be rounded up to 10 years.
  • If no wage is earned for a certain period, that period is to be deducted from the service, as there will be no contribution to the pension fund.
  • If one resigns before completing 9 years and 6 months of service, you get the “withdrawal benefit” which depends on your monthly salary and the no. of years of service.
  • No pension is payable before the age of 50 years.
  • An early pension can be claimed after 50 years but before the age of 58 years. But it is subject to discounting factor @ 4% (w.e.f. 26.09.2008) for every year falling short of 58 years. In case of death/disablement, the above restrictions do not apply.
  • No pensioner can receive more than one EPF Pension. So if you have worked in multiple organizations, you need to consolidate all your EPS and then apply for EPS Pension. If you have multiple Scheme Certificates you need to submit all of those.
  • EPS Pension is taxable and has to be considered under the head Income from Salaries.

How to Calculate your pension under EPS?

The pension amount in PF depends on the pensionable salary of the member and the pensionable service. These are explained in detail below:

A) Pensionable Salary

The member’s monthly pension amount is calculated as per the following formula:

Member’s Monthly Salary = Pensionable salary X Pensionable service / 70
  • The pensionable salary shall be the average monthly pay drawn in any manner including on a piece-rate basis during the contributory period of service in the span of sixty months preceding the date of exit from the membership of the Pension Fund and the pensionable salary shall be determined on pro-rata basis for the pensionable service up to the 1st day of September 2014, subject to a maximum of six thousand and five hundred rupees per month, and for the period thereafter at the maximum of fifteen thousand rupees per month,
  • provided that: if a member was not in receipt of full pay during the period of sixty months preceding the day, he ceased to be a member of the Pension Fund, the average of the previous sixty months of full pay drawn by him during the period for which contribution to the pension fund was recovered, shall be taken into account as pensionable salary for calculating pension.
  • If during the said span of 60 months there are non-contributory periods of service including cases where the member has drawn salary for a part of the month, the total wages during the 60 months span shall be divided by the actual number of days for which salary has been drawn and the amount so derived shall be multiplied by 30 to work out the average monthly pay.
  • The maximum pensionable salary shall be limited to fifteen thousand rupees per month (₹15,000).

Since the employer contributes 8.33% of this salary to the employee’s EPS account, the amount deposited in the EPS account of the employee every month is

₹ 15000 x 8.33/100 = ₹ 1250

B) Pensionable Service

The actual service period of the member is considered as the pensionable service. Service periods under different employers are added at the time of calculating the pensionable service period. The employee has to get the EPS Scheme Certificate issued and submit it to the new employer every time he/she switches a job.

It is worth mentioning that the employee gets a bonus of 2 years after completing 20 years of service.

If the member withdraws the EPS corpus before completing the service period of 10 years and joins another company, he/she will have to start afresh for contributing to the EPS account and the service period will also be set as zero at the start.

The pensionable service period is considered on a 6 months basis. The minimum pensionable service period is 6 months. If the service period is 8 years 2 months, the pensionable service period considered is 8 years. However, if the service duration is 8 years and 10 months, the pensionable service period is taken as 9 years.

Important Points to remember about EPF Pension:

  • All contributions made to the Employees’ Pension Scheme (EPS) account have to be done by the employer
  • The employer makes a contribution of 8.33% of the employee’s pay toward EPS
  • The employee’s pay consists of basic wages, dearness allowance, retaining allowance, and admissible cash value of food concessions.
  • The employer has to make the contribution within 15 days of the close of every month
  • All applicable contribution cost has to be borne by the employer
  • The principal employer has to make the contributions for all employees working for him/her directly or under a contractor
  • The minimum service period is 10 years to be eligible for availing pension benefits
  • If you have completed less than 10 years of service. but more than 6 months’ service, you can withdraw the EPS amount on being unemployed for more than two months.
  • As per the scheme, the retirement age of the person is fixed at 58 years
  • An employee ceases to be a member of the Pension Fund after reaching the age of 58 or from the time he/she starts availing reduced pension (at the age of 50).

How to Apply?

At this portal, register to download/print your UAN Card, update your KYC information, etc., –

  • Members with authenticated Aadhaar and Bank details seeded against their UAN can now submit their PF Withdrawal/Settlement/Transfer claims online.
  • One mobile number can be used for one registration only.
  • A member can view the passbooks of the EPF accounts which has been tagged with UAN.
  • Passbook facility is not available for members of establishments having exemption under the EPF Scheme 1952 (Private Trust Funds)

You can find Form 10D for claiming the monthly pension. This form is provided by the Employees’ Provident Fund Organisation (EPFO) and it has to be submitted by the first claimant i.e., member or widow/widower, orphan, or nominee as the case may be.

Once the entire process of submitting your form 10D is completed and complied with, the EPFO will process your application for settlement of pension by issuing a PPO (Pension Payment Order) to your banker (as mentioned by you in Form 10D). Your banker will release the monthly pension as per instructions in the PPO.

Disclaimer: The above information is compiled from various sources to make it simple and easy to understand. This information is provided here only as a guide and information. If you have any specific questions, please consult your financial/tax advisor or relevant government authorities/departments.

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