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Employees Pension Scheme

Employees’ Pension Scheme (EPS) was introduced in the year 1995 by the Employees’ Provident Fund Organisation (EPFO). Employees’ Pension Scheme is a social security scheme in which employees working for organised sector enrol to facilitate pension after retirement. The current retirement age in India is 60 years; however, Employee Pension Fund ceases once the employee has reached the age of 58 years. The benefit of the scheme can only be availed if the employee has been in service for at least 10 years. Also, this need not be continuous service.

As per the most up to date revision in the Employee Pension Scheme effective from 1st September 2014, the EPF contribution for employee is 12% of the salary goes into the EPF account and 12% of the employer’s contribution is divided into 3.67% for EPF, 8.33% for EPS, 0.5% for EDLI 1.1% as EPF admin charges and 0.01% as EDLI Admin charges. The minimum pension under EPS has been set to INR 1000 and EPF is compulsory for employees who are drawing a monthly pay of INR 15,000 per month. Although, an employee who is drawing a salary above the prescribed limit (at present INR 15,000) can also enrol in the scheme with permission of Assistant PF Commissioner if he and his employer agree.

The EPS scheme covers every organisation in which 20 or more persons are employed. However, organisations having less than 20 employees can also be covered, subject to certain conditions and exemptions. On retirement, the employee gets a lump sum amount which includes contribution made by self and employer’s contribution with interest. It is to be noted that the service years are calculated in intervals of 6 months.

If an employee has been in service for more than 6 months, it will be rounded to a year and if it is less than 6 months, it will be rounded to the previous year. For instance, if an employee has served in service for 19 years and 7 months, it will be round to 20 years. Likewise, if an employee has served in service for 19 years and 4 months, then it will be rounded to 19 years only. The pension is given for lifelong tenure and it is passed to spouse and two children on the employee’s death. Employees’ Provident Fund Organisation (EPFO) has 4 crore subscribers and 5 million pensioners.

Types of Employee Pension Scheme

Under EPS, there are the different classification of pensions for widows, children, and orphans. The pensions provide financial backing and support to the family member of the EPF subscriber.

Reduced Pension Scheme

The member of the Employees’ Provident Fund Organisation can take an early pension, if he or she has completed 10 years of service and has attained the age of 50 years, but is less than 58 years. In this instance, the pension amount will be reduced at a rate of 4% for every year the age is less than the required 58 years. For example, if the members decide to withdraw the monthly reduced pension at the age of 55 years, he/she will get the pension at the rate of 88% (100 – 3 x 4) of the original pension amount.

Child Pension Scheme

If the member of Employees’ Provident Fund Organisation dies during the active service and has left behind spouse and children, then monthly children applicable will be applicable. The children pension will be given in addition to the monthly widow pension. The children pension will be paid until the time the child reaches to the age of 25 years. The calculation of children pensions is 25% of the widow pension and is applicable for a maximum of two children.

Orphan Pension Scheme

If the member of Employees’ Provident Fund Organisation dies and has no surviving spouse, then the children are entitled to get a monthly orphan pension. The calculation of the orphan pension is 75% of the value of monthly widow pension. The children will be eligible to receive an orphan pension until they reach the age of 25 years and is limited to 2 children only from oldest to youngest. In the recent amendment made in the year 2016, the Labour Ministry has extended the orphan pension beyond 25 years, if the child is suffering from a disorder of body or mind.

Vridha pension Scheme

If the member of Employees’ Provident Fund Organisation dies, then his or her spouse will be eligible for a widow pension. The pension will be paid to financially support the widow until his/her death or remarriage. If there is more than one widow, then the amount will be payable to the eldest widow.

The monthly Vridha pension amount will be calculated as per Table-C of the EPS, 1995. The minimum amount of pension has been increased to INR 1000 in the recent amendments. As per the pensionable pay of INR 6,500 for member pensioners, the widow pension is calculated according to the table shown below. It is to be noted that since the monthly pensionable salary has been increased to INR 15,000, a higher pension may be available.

Benefits of Employee Pension Scheme

All eligible members of the Employees’ Provident Fund Organisation can get pension benefits according to their age when they start withdrawing the pension. The pension amount is likely to differ for different cases.

Pension on attaining the age of 58 years

The EPFO member becomes eligible for pension benefits once he or she attains the age of 58 years. However, it is obligatory for them to be in service for the duration of at least 10 years when they turn 58 years of age for availing pension benefits. On attaining 58 years, an EPS Scheme Certificate will be generated by EPFO which can be used by the member to fill Form 10D for withdrawing the monthly pension.

Withdrawing pension before becoming eligible for Monthly Pension

In case the EPFO member is not able to remain in service for 10 years before attaining the age of 58 years, he or she can withdraw the complete sum contributed at the age of 58 years by filling Form 10C. It is to be noted that he or she will not get any furtheramount as monthly pension after retirement as they have not fulfilled the basic criteria of being 10 years in service.

Pension on accident leading to Total Disablement during the Service

An EPFO member, who becomes disabled totally and permanently due to accident or illness, is eligible to get a monthly pension,regardless of the fact that he has not served the pensionable service period. To be eligible for pension, his or her employer has to deposit funds in his EPS account for at least one month.

The member will be eligible for the monthly pension from the date of permanent disablement and the pension will be paid to the member for lifetime. However, the member has to go through a medical examination to verify whether he or she is disabled and is not fit to carry on the work anymore. This procedure is taken as a cautionary measure to avoid any scams from fraudsters.

Pension for the Family if the EPFO member dies during active service term

A member’s family/dependents will be eligible for the pension in the following cases:

  • If theEPFO member dies while in active service and the employer has deposited funds in his/her EPS account for at least one month.
  • If the EPFO member has completed 10 years of service and dies before reaching the age of 58 years.
  • Ifthe EPFO member dies after the start of the monthly pension

How to Calculate Your Pension Under EPS

The pension amount in the PF is dependent on the pensionable salary of the member and the number of years in service. The EPFO member’s monthly pension amount is calculated as per the below mentioned formula: Member’s Monthly Pay= Pensionablepay X Pensionable service / 70

Pensionable Pay

Pensionable pay is the average monthly pay in the previous 12 months before the member exits the Employees’ Pension Scheme. If there are non-contributory periods in the previous 12 months of the service, the non-contributory days in the month will not be taken into consideration and the benefit of those days would be given to the employee. For instance, if the individual takes up the job on 5th of the month, then his pay of 25 days will be divided as per each day’s pay and then multiplied with 30 to calculate the total monthly

Pay for the month

If the salary of the person is INR 15,000, the salary for the person would be INR 12,500 for 25 days (INR 500 per day less for five days). However, the monthly salary that is to be considered for EPS will be for 30 days, i.e. INR 15,000. The maximum pensionable salary is limited to INR 15,000 every month.

Since the employer is contributing 8.33% of this salary in the employee’s EPS account, the amount deposited in the EPS account of the employee will be calculated as below-

INR 15000 x 8.33/100 = INR 1250

Pensionable Service

The actual service term of the member is taken into consideration as the pensionable service. Service terms under different employers are added together at the time of calculating the pensionable service term. The EPFO member has to get the EPS Scheme Certificate issued and is required to submit it to the new employer every time he or she changes a job.

It is to be noted that the EPFO member gets a bonus of 2 years on completion of 20 years of the service term. If the EPS corpus is withdrawn by the member before completing the required service term of 10 years to be eligible for a pension, then the previous service term will not be considered in future pension eligibility service term. He or she will need to start fresh if they decide to enrol in the EPS scheme again.

If an employee has been in service for more than 6 months, it will be rounded to a year and if it is less than 6 months, it will be rounded to the previous year. For instance, if an employee has served in service for a total of 17 years and 2 months, it will be round to 17 years. Similarly, if an employee has served in service for a total of 14 years and 7 months, then it will be rounded to 15 years.

How to Check Your EPS Amount

The EPFO member can check the amount accumulated in his/her Employees’ Pension Scheme (EPS) account through an updated EPF Passbook. The last column in the passbook highlights the EPS contribution deposited by the employer each month in the account of the member. The passbook can be downloaded online by the member from the EPF Passbook online portal after logging into the account using UAN (Universal Account Number) and password.

Eligibility For EPS

For an individual to be eligible for the benefits under the Employees’ Pension Scheme (EPS), he/she need to fulfil the below criteria-

  • He/she needs to be a member of Employees’ Provident Fund Organisation (EPFO)
  • He/she needs to have completed 10 years of service term
  • He/she is required to attain the age of 58 years
  • Pension can be withdrawn at a reduced rate after attaining 50 years of age
  • Pension can be deferred for up to 2 years (age of 60 years)

FAQs on Employee Pension Scheme

Can we withdraw pension contribution in EPF?

EPF pension contribution can be withdrawn on attainting the age of 58 years by the EPFO member.

How does employee pension scheme work?

Employee pension scheme was introduced in the year 1995 by the Employees’ Provident Fund Organisation (EPFO) to help built retirement corpus for salaried individuals. The employer contributes 12% of basic wages plus DA allowance plus retaining allowance. The same amount of contribution is made by the employee as well. Once the member retires at the age of 58 years, he/she gets a lump sum amount and pension for a lifetime. If the member dies, then the spouse and children are eligible for his/her pension; however the pension amount may differ.

How is EPF pension calculated?

The pension amount in the PF is dependent on the pensionable salary of the member and the number of years in service. The EPFO member’s monthly pension amount is calculated as per the below mentioned formula: Member’s Monthly Pay = Pensionable pay X Pensionable service / 70

What happens to pension contribution in EPF?

The complete 12% of employee’s contribution is added towards Employee Pension Fund, whereas 8.33% out of the total 12% of the employer’s contribution is allotted to the EPS and the balance 3.67% is invested in EPF.

What is the benefit of employee pension scheme?

The employee is able to save towards their retirement in an organised manner. The employer also contributes in building the retirement corpus for the employee. Apart from this, there are also tax benefits as the contribution made by the employee is eligible for tax deduction under the Income Tax Act of 1961.

When an employee is eligible for pension?

The employee is eligible for a pension after completion of a minimum of 10 years in service and should be a member of EPFO for the entire period. The member starts getting pension after reaching the age of 58 years, although the extension of the getting pension can be deferred by 2 years i.e. the member reaching 60 years of age which has become official retirement age in many organisations.

Who is eligible for employee pension scheme?

Employees’ Provident Fund scheme is eligible for all the employees who are covered under the Employees’ Provident Fund scheme.

How to do EPS transfer online?

EPS online transfer can be done through the Composite Claim Form. The EPFO member has to login to the Online EPF Member Portal and applies for EPF transfer on the job change. Following this, the EPF and EPS account will be transferred to the new account automatically.