The Employees’ Pension Scheme (EPS) is a social security initiative provided by the Employees’ Provident Fund Organisation (EPFO), aimed at ensuring a regular pension for employees after their retirement.
It applies to all establishments with 20 or more employees. The scheme provides pension benefits to employees after retirement.
Key Features of the Employees’ Pension Scheme (EPS):
The scheme provides a pension to employees once they retire, along with other benefits like disability pension and pension for the nominee in case of the employee’s death.
Eligibility Criteria for EPS:
To be eligible for availing benefits under the Employees’ Pension Scheme (EPS), an individual must fulfill the following criteria:
- They should be a member of EPFO
- They should have completed 10 years of service
- They have reached the age of 58
- They can also withdraw their EPS at a reduced rate from the age of 50 years
- They can also defer their pension for two years (up to 60 years of age), after which they will receive a pension at an additional rate of 4% for each year.
Contribution:
Employees don’t directly contribute to EPS. Instead, the employer contributes 8.33% of the employee’s salary (on a maximum salary of Rs 15,000/month).
Out of the total provident fund contribution by an employee, which is 12% of the salary, only a portion is allocated to the Employees’ Provident Fund (EPF). Specifically, 8.33% of the salary is directed towards the EPF. For salaries up to Rs 15,000, this amounts to Rs 1,250 per month. For salaries exceeding this cap, the contribution towards EPF remains Rs 1,250.
Your employer matches your EPF contribution, with 8.33% of the matched amount going towards the EPS.
The Government of India contributes 1.16% of your Average Salary (Basic Salary + Dearness Allowance, DA) to the EPS.
Both the employer’s and the Government’s contributions are based on a maximum of Rs 15,000 for Basic Salary plus DA. Therefore, your employer will contribute no more than Rs 1,250 (8.33% of Rs 15,000) per month towards the EPS, and the Government will contribute up to Rs 174 (1.16% of Rs 15,000) per month.
If your Average Salary exceeds Rs 15,000, the Government will stop contributing to your EPS. In this case, you will be responsible for contributing the 1.16% towards your EPS yourself.
Minimum Service Period:
To receive a pension, you need to have a minimum of 10 years of service.
The pension can be withdrawn early at age 50, but a reduced pension will be given. The full pension is available after the age of 58.
Age of Pension:
- The scheme provides a pension from the age of 58 years. You can opt for early pension at 50 years, but it will be reduced by 4% for each year below 58.
- If an employee has completed 10 years of service but quits before 58 years of age, they can opt for a deferred pension starting from the age of 58.
- Nominee Benefits: If the member dies, the spouse, children (up to age 25), or nominated dependents can claim the pension benefits.
EPS Pension Calculation Formula:
The pension amount under EPS is calculated using this formula:
Monthly Pension=Pensionable Salary×Pensionable Service/70
Where:
Pensionable Salary = Average monthly salary of the last 60 months (with a cap of Rs 15,000/month).
Pensionable Service = Total years of service (rounded down to the nearest full year).
Example:
Assume:
Pensionable Salary = Rs 15,000
Pensionable Service = 20 years
Monthly Pension= Rs 15,000×20/70= Rs 4,285.71(rounded down to Rs 4,285)
Types of Pensions under the Pension Scheme:
Widow Pension: This pension is provided to the widow of an EPS member.
Child Pension: This pension is available to both the widow and the children of an EPS member.
Orphan Pension: This pension is granted to the children of an EPS member in the event of the member’s death.
Reduced Pension: If you choose to withdraw your pension early, your retirement pension will be reduced by 4% annually.
Other Benefits under EPS:
Disability Pension: If an employee becomes disabled during employment, they are eligible for a pension, irrespective of their length of service.
Withdrawal Benefit: If an employee leaves before completing 10 years of service, they can withdraw their EPS contributions as per the withdrawal table provided by EPFO.
Tax on EPS Pension
Readers must note that both the pension and the lump sum amount are subject to taxation. Although interest earned on EPF accounts is tax-exempt, if it exceeds Rs. 2.5 lakh per year, it will be taxed according to the applicable rate.
EPS is an important component of retirement planning for employees, as it ensures a steady income after retirement.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Readers are advised to check with certified experts before making any investment decisions.
