This article provides a step-by-step guide on calculating your pension amount under India's Employee Pension Scheme (EPS), including important conditions and restrictions.
The Employee Pension Scheme (EPS) is a social security scheme launched by the Government of India to provide retirement benefits to employees covered under the Employees’ Provident Fund (EPF) scheme. The EPS provides a pension to eligible employees who have completed ten years of service or more. The pension calculation formula based on a formula that considers the employee’s length of service, average monthly pensionable salary, and pensionable service. In this article, we will explain how to calculate pensions under EPS and pension calculation formula step-by-step.
Procedure to Calculate EPS | Pension Calculation Formula
Step 1: Determine the Pensionable Salary
The first step in pension calculation formula amount under EPS is determining the employee’s pensionable salary. The pensionable salary is the average of the employee’s basic salary and dearness allowance (DA) over the last 12 months before the employee’s retirement or the date of exit from the EPS, whichever is earlier. However, suppose the employee has not completed 12 months of service before leaving the EPS. In that case, the average of the basic salary and DA over the employee’s entire service period will be considered.
It is important to note that the pensionable salary is subject to a maximum limit of ₹ 15,000 per month. If the employee’s salary is higher than ₹ 15,000 per month, only ₹ 15,000 will be considered for calculating the pensionable salary.
Step 2: Calculate Pensionable Service
The next step is calculating the employee’s pensionable service. Pensionable service is the length of service of the employee under the EPS. It includes both past and present services under the EPS. However, past service refers to service before the employee became a member of the EPS and was covered under a different pension scheme.
Pensionable service is calculated in units of years and fractions of years. One year of pensionable service is considered 12 months, and a fraction of a year is calculated based on the number of months of service completed.
The Process for the Calculation of EPS for the 2 Categories Are Mentioned Below
Calculation of Pension if the Individual Has Joined Before 16 November 1995:
In case individuals have joined the organisation before 16 November 1995, the amount of pension they receive is fixed and it is based on their salary. Given in the table below is the break-up of the pension amount that an individual will receive:
| Number of years of service (years) | Pension Amount (In case the salary is ₹2,500 or less) | Pension Amount (In case the salary is more than ₹2,500) |
| 10 | ₹80 | ₹85 |
| 11-15 | ₹95 | ₹105 |
| 15-20 | ₹120 | ₹135 |
| More than 20 | ₹150 | ₹170 |
Calculation of Pension in Case the Individual Has Joined After 16 November 1995:
The below-mentioned formula must be used for the calculation of pension in case the individual has joined after 16 November 1995:
EPS = (Service Period x Pensionable Salary)/70
Calculation of Pensionable Salary is based on the average income an individual has made over the last 5 years.
Step 3: Determine Pensionable Service Ceiling
The pensionable service ceiling is the maximum number of years of pensionable service that can be considered for calculating the pension amount. The pensionable service ceiling is 35 years. If the employee has completed over 35 years of pensionable service, only 35 years will be considered for calculating the pension amount.
Step 4: Pension Calculation Formula
The final step is to calculate the pension amount based on the employee’s pensionable salary and pensionable service. The pension calculation formula as follows:
Pension amount = Pensionable salary x Pensionable service / 70
The pension calculation formula uses a constant factor of 70 to determine the pension amount. It is based on the assumption that the employee will live to the age of 58, which is the retirement age under the EPS. If the employee lives beyond the age of 58 years, the pension amount may be revised based on the actuarial valuation of the EPS.
Let us take an example to understand how to calculate the pension amount under EPS.
Suppose an employee has a pensionable salary of ₹ 12,000 per month and has completed 20 years of pensionable service under the EPS. The employee’s pension calculation formula as follows:
Pension amount = 12,000 x 20 / 70 = ₹ 3,428.57
Therefore, the employee will be eligible for a pension amount of ₹ 3,428.57 per month under the EPS.
Conclusion
In conclusion, the EPS is an important social security scheme that provides retirement benefits to employees covered under the EPF scheme. The pension amount under the EPS is calculated based on the employee’s pensionable salary and pensionable service using a pension calculation formula that considers these factors. Employees need to understand how the pension amount is calculated so that they can plan their retirement accordingly.
Employees should also note that the pension amount is subject to certain conditions and restrictions. For example, the pension amount is payable only to employees who have completed ten years of service or more under the EPS. In addition, the pension amount is subject to annual increases based on the cost of living index, as determined by the Government of India.
Vakilsearch EPF Calculator can help individuals pension calculation formula their expected EPF (Employees’ Provident Fund) contributions and estimate their retirement savings. The calculator can provide a breakdown of monthly contributions and projected savings by entering their basic salary and contribution details. This tool can help individuals plan their retirement savings and ensure they are on track to meet their financial goals.
FAQs on Pension Calculation Formula
What factors influence the calculation of pension under the EPS?
Pension under the Employees' Pension Scheme (EPS) is influenced by factors such as pensionable salary, service period, and the contributions made by the employer and employee.
How is the pensionable salary determined for the purpose of EPS calculations?
Pensionable salary for EPS calculations includes basic salary and dearness allowance, excluding other allowances or bonuses, as specified by the EPFO.
What is the role of the pensionable service period in determining the pension amount under EPS?
The pensionable service period is a crucial factor in EPS calculations, directly impacting the final pension amount, with longer service periods resulting in higher pensions.
Are there specific formulas or guidelines provided by the Employees' Provident Fund Organisation (EPFO) for calculating EPS pension?
Yes, the EPFO provides specific formulas and guidelines for calculating EPS pensions, considering factors like average monthly pensionable salary and service period.
How do contributions made by the employer and employee impact the final pension amount under EPS?
Both employer and employee contributions influence the final EPS pension amount, with higher contributions leading to increased pension benefits.
What is the maximum pensionable salary and service period considered for EPS calculations?
The maximum pensionable salary and service period considered for EPS calculations are capped at specific limits set by the EPFO.
Is there an option for employees to enhance their pension amount under EPS, and how is this achieved?
Yes, employees can enhance their pension amount by contributing to the Employees' Pension Scheme (EPS) beyond the mandatory requirements, known as the Voluntary Provident Fund (VPF).
Can individuals calculate their projected EPS pension amount before retirement, and are there online tools available for this purpose?
Yes, individuals can use online tools provided by the EPFO to calculate their projected EPS pension amount, enabling them to plan for their retirement.
What steps should employees take to ensure accurate and timely processing of their EPS pension benefits?
To ensure accurate and timely processing of EPS pension benefits, employees should regularly check their provident fund statements, update personal details, and communicate with their employer or the EPFO for any discrepancies.
