Reference my article EPS 95 – Eligibility for higher Pension Part I & EPS 95 – Eligibility for higher Pension Part II dated 05.01.2023 & 04.02.2023 respectively.
The Supreme Court in its Judgement dated 04.11.2022 in the case of Employees Provident Fund Organisation & Anr. Etc. Vs Sunil Kumar B. & Ors. Etc. allowed employees to opt for a higher pension within 4 months from the date of judgment i.e. on or before 3rd March 2023.
Employers have directed the employees to initiate the process of joint option by the eligible employees well before 3rd march 2023 .There is a lot of confusion among employees about whether to opt for a higher pension or not.
Let us try to understand the calculation with the help of the Case study. Ms. Neeta who is due for retirement on 30th June 2024 could manage to extract records from Nov 1995 onwards. The details available and calculation thereof is brought out in tabular Form for better understanding and clarity.
1. Details Available
|
(a) |
Date of Retirement | 30 June 2024 |
| (b) | Pensionable Service | 30 Years |
| (c) | Average Salary (Basic+DA) for the last 60 months | Rs. 1,94,000 |
| (d) | Actual Salary Received/ Receivable (Nov1995 – June 2024) | Rs. 2,64,96,009 |
| (e) | Total Employer Contribution ( 12% * 1(d)) | Rs. 31,79,521 |
2. Pensionable Salary & Contribution to EPS (if not opted for higher Salary)
|
Sl |
Period | No. of months | Pensionable Salary (Rs.) | Monthly Pension Contribution | Total Pension Contribution(Rs.) |
| 2(a) | 2(b) | 2(c ) | 2(d) | 2(e) | 2(f)= (2(c)*2(e) |
| (i) | Nov1995- Sep 2001 | 71 | 5000 | 417 | 29,607 |
| (ii) | Oct 2001 – Aug 2014 | 155 | 6500 | 542 | 84,010 |
| (iii) | Sep 2014 – June 2024 | 118 | 15000 | 1250 | 1,47,500 |
| (iv) | TOTAL | 2,61,117 |
3. Pension Calculation
|
Sl |
Exercise of Option | Pensionable Salary (Rs.) | Pension Calculation | Pension Amount (Rs.) |
| 3(a) | 3(b) | 3(c ) | 3(d) | 3(e) |
| 3(i) | Opted | 1,94,000 | 1,94,000*32/70 | 88,686 |
| 3(ii) | Not Opted | 5000/6500/15000 | {(5000*71/12)+(6500*155/12)+(15000*120/12)}/70 | 3,765 |
| 3(iii) | Difference in Pension | 84,921 | ||
| Note: Two years additional is to be considered for service of more than 20 years | ||||
4. Amount to be diverted to EPS from EPF
| Sl | Exercise of Option | Actual Salary | Total EPF Contribution | Diverted to EPS | Diverted to EPS (Rs.) | Balance in EPF (Rs) |
| 4(a) | 4(b) | 4( c) | 4(d) | 4(e) | 4(f) | 4g=[4 (d ) – 4(f)] |
| 4(i) | Opted for Actual Salary | 2,64,96,009 | 31,79,521 | 4(c )*8.33% | 22,07,118 | 9,72,403 |
| 4(ii) | Not Opted | 2,64,96,009 | 31,79,521 | Refer 2a(iv) | 2,61,117 | 29,18,404 |
| 4(iii) | NET AMOUNT TO BE DIVERTED TO EPS FROM EPF IF OPTED FOR HIGHER PENSION | 19,46,001 | ||||
Note: Interest on the amount indicated at 4(iii) is also required to be paid to EPFO towards Pension.
5. EPS VS. EPF –MONTHLY INFLOW
|
Sl |
Exercise of Option | Balance in EPF at the time of retirement | Monthly income (assuming put in FD @ 5%) | Monthly Pension | Total Inflow |
| 5(a) | 5(b) | 5(c ) | 5(d) | 5(e) | 5(f)=5(d)+5(e) |
| 5(i) | Opted | 9,72,403 | 4052 | 88,686 | 92,738 |
| 5(ii) | Not Opted | 29,18,404 | 12,160 | 3,765 | 15,925 |
6. OPT OR NOT TO OPT, AN ANALYSIS: If the option for a higher pension is exercised, the principal amount of 19,46,001 will not be available to the employee. In a period of approx 26 months the amount will be recovered in the form of excess monthly inflow. Also, the employee / family can enjoy the higher return thereafter without any additional cost.
7. It can be concluded that, while each individual situation will vary depending upon factors such as life expectancy, cash flow requirements, ability to invest in alternate funds etc., a higher contribution will result in increased monthly pension.
****
Disclaimer: The article is for educational purpose only. This calculation and analysis may be right or wrong. To the best of my limited understanding, I have tried to do calculations and analysis. Comments & suggestions for corrections are welcome.
The author can be approached at [email protected]
Author Bio
Will the method of calculations will have to be on PRO RATA Basis or not, as in a reply to RTI the EPFO has stated that the pension will be calculated as per PARA 12 of EPS 95 ACT.
Para 12 unequivocally states that the method of calculationswill have to be onPRO RATA Basis.
HOWEVER some regional offices are issuing PPOs on PRO RATA Basis and some on straight forward method.
Your COMMENTS Please.
Superannuated in 2012from IPCL/RIL and drawing pension Rs 2013 till date from EPS 95. Whether I am eligible or not to apply. What detail to fill up.
Sir, I just completed 30byears in pvt job and contributing in pf and epf for 30 years now 12 years job is still pending …shall I opt for pension plan epf ?
Thanks for the detail calculations. I would also like to see post tax implications for pension amount because the amount will be taxable a per tax slab.
Respected Madam I am so confused whether to opt or not opt for the higher EPS because due to service disconitinuity and financial liabilty I wothdrew the PF so my actual EPS servce will be for max 18 years if job remails for next 05 years with expecetd basic touching 80000/- or so from 50000/- in 2010.
Do you suggest I should go for higher EPS with 18 years of service?
Everybody is confused as there are number of unanswered questions in front of us.
We all are waiting clarifications from EPFO.
Whether to opt or not is depends on individual’s circumstances & so many other factors.
Can the application for higher pension can be forgo at later stage ( during its processing) once we get all calculations/tax and decide to discontinue it?
Is online submission of joint option is possible? Do employer need to approve it?
How to get PPO no. as original pension is still not approved.
Is the amounts shown in 4g or 4(g) includes the interests paid to the EPF accumulations every year*? If not, then corresponding EPF accumulation / balance amounts in 4(i) and 4(ii) will be different and the amount in 4(ii) will be much higher. Isn’t it?
The interest is not included in the amount calculated in the said paras It is because by the time, this article was written, there was no clarity for interest calculation.
or interest calculations & methodology to calculate interest, please refer the article:
https://taxguru.in/corporate-law/eps-95-higher-pension-frequently-asked-questions.html
You are right, with the compounding interest, the amount will be much higher
I am retired on 2017 from PSU and opted for higher pension.Whether the difference amount to be paid directly to EPFO. Am I getting arrears from 2017. Pl. reply
EPFO’s guidelines are awaited , but based on declaration in online form , it can be inferred that payment to EPFO will be through employer.
Hi Ms.Anita, I have two questions that need some clarification. I am asking you these questions as I find your article to be very the most sensible one I have come across so far.
I have voluntarily retired from a company having an exempted PF Trust in Sep 2018, after a pensionable service of 23 yrs ( Actual DOJ was 1.1.1987). I asked for an early pension from EPS and started getting it from the age of 52.5 yrs. So I am getting 80.57% of the pension that I would have got had I been 58yrs old.
Q1. I have withdrawn my entire PF at the time of retirement. Now if I opt for higher pension, how would I have to pay the amount. Do I pay directly to EPFO or should I pay to my PFTrust and they will in turn pay to EPFO?
Q2. Will the EPFO tell us clearly what formula they are going to use for calculating higher pension so that we can take an informed decision whether to opt or not. I don’t want to pay up and find out later that the pension is lower than expected as they have changed the formula.
Thank you in advance!
NGS
Thank you Sir for your humble comment.
You are not eligible for higher pension as once early pension is sanctioned, it cannot be altered .
Refer Q No. 15 on EPFO Portal https://www.epfindia.gov.in/site_en/FAQ.php
Amendment ( addition) in earlier reply :- This rule is for normal early pension case . I am not sure whether the same rule is applicable for higher pension also.
Thanks for the explanation !! Can you also explain how much interest amount would be applicable on 4(iii), as this interest amount will also have to be transferred to EPFO. Thanks…
Refer article dated 19.02.2023
EPS 95- Higher Pension – Frequently Asked Questions
Read more at: https://taxguru.in/corporate-law/eps-95-higher-pension-frequently-asked-questions.html/comment-page-1#comment-122384167
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I retired in Nov 2017. If I paid back the differential amount to EPFO, will I be getting arrears of pension wef Nov 2017 being difference of lower pension and the new higher pension?
Yes , you will get the arrears
To
Anitha Mm,
Why interest on the differential amount between actual salary and ceiling amount from 1995 not included in the calculation.
Some are telling, compound interest will be worked out and the total amount will be twice that of principal.
Moreover, if we are not opting for higher pension, then our amount will be kept in the PF, in which we can get interest cumulatively. At present, the rate of interest in PF is 8%,
I am going to retire in Jun.2030.
Madam, can you provide a sample calculation considering the interest factor for both opting and not opting cases.
Thank you
Refer my other articles on Tax Guru .
https://taxguru.in/corporate-law/eps-95-higher-pension-frequently-asked-questions.html
my current basic +da salary is ₹30000
i have contributed till date, will be retired in 2032
employee 12% to PF = ₹3600
employer 8.33% EPS=₹1250
employer 3.67% PF = ₹2350
am I eligible for higher pension?
can I opt for higher pension?
please guide me
I want to understand how it was arrived at 194000 in your calculation 1c. Is it calculation or actual total amount for 60 months.
I have done job in India for 13 years as i worked overseas earlier. Will this scheme benefit like me.
It is just to explain the methodology of calculation.
I have taken loan from my PF savings. I am to retire in 2026. I have joined in my job in 2003. Present basic 56000/=. Should I opt for higher pension.
Higher pension doe not appear sustainable. The pension calculation formula may be changed by EPFO. Ultimately they will use our own money to give us pension. Annual return of 34 % cannot be funded by Govt
The formula can be changed by EPFO. Our money will be invested by the EPFO and moreover pension is a Social Security that should be funded & supported by the Government. So much tax is being paid by the salaried employees.
Dear Sir
I worked in a private company from 1985 to 2002 and left abroad thereafter returned and joined another private company from 2010 and will be retiring in 2026. Is it advisable to opt for higher pension will there be a break in service from 2002 to 2010 and pensionable service will be calculated from 1995 ?
Pensionable service will be calculated from 2010.
Whether the EPF95 pension salary of retired PSU employees is revisable like CDA?
No , It is fixed
Dear madam, My month of retirement is June 2015. Should I consider the ceiling of Rs. 6,500/15,000 etc. while calculating the average of 60 months (to calculate Pensionable Salary), if those 60 months includes various months before September 2014?
if you retired at the age of 60 in june 2015 , you are not eligible for higher pension.as 58 years completed before Sep 2014.
For higher pension , pension is on actual salary ( without any capping) .Hence , pro-rata calculation is not required.
It will be actual average salary of last 60 months.
Very nicely explained. Thanks a lot Anita. Some queries though. What should an employee having Basic of 25000 in 2023 and having 3 years service left will be required to contribute to EPS for opting higher pension and how much he/she would be getting as pension ?? Will be highly obliged if you can guide
Thanks for your humble comment.
The Contribution to the amount EPS requires more details like (a) Basic+DA for the period contributed to EPS. (b) Number of years in service etc. (c) Actual amount contributed
You can share these details; I will calculate the amount to be contributed.
The formula to calculate pension amount at the time of retirement (58 years of age) is: (Average salary of last 60 months * pensionable service / 70)
If pensionable service is more than 20 years, 2 years will be added to the pensionable service
what 8s calculation method for higher pension and which amount will be deposited by employee and employer sepate
Is there any ceiling of the max pension per month, say 20,000 per month max.
No ceiling on monthly pension, but the maximum years of service is capped at 35 years.
So roughly 50% of basic+DA is the maximum limit
I am 29 years old and have worked for the PSU for 10 years, yet I still have 31 years of service. The question is whether or not I should choose a higher pension plan. because those who will retire in 15 years or less will greatly profit from this.
I believe everybody should go for a higher pension irrespective of age and remaining in service.
The higher pensions can not be considered only as an investment plan. It will give a social security as well.
In order to opt for Higher Pension, in my case, I will have to shell out Rs 45 Lakh to EPFO. Now sustainability of high pension is a big question mark. How long we will get enhanced pension of Rs 80000/- per month we donot know. What if I take term plan for Rs 45 Lakh which I will be paying to EPFO. In case of my untimely demise, at least my family will get Rs 45 Lakh which I paid to EPFO.
Will it be a good strategy? Please guide.
In my view , pension should be viewed as a social security and one should certainly opt for that.
Once approved , it is very unlikely that it will be stopped in between.
Government support will help EPFO to pay higher pension
The basic error in above computation is that in case of “Not Opted”, amount of INR 29,18,404/- in EPF does not factor any interest accumulated which will be significant number accordingly FD return on “with interest” corpus will be much higher. In case of “opt in”, additionl contribution of INR 19.46 Lac with accumulated interest will move to EPS as EPFO will ask interest on arrears of 30 years which largely will be equal to interest accumulated on EPF balance as RoI are largely same (~8.5% pa).
Interest received on EPF balance & payable to EPS – both not factored in the article as interest rates were not available with me at the time of writing the content and share calculation.
Net effect of cash flow will remain same .
Dear Anita – there are mistakes in the calculation. The impact on cash flows cannot be assumed to be netting off in opt-in vs opt-out cases.
Person opting out will get significant compounding benefits on the money invested over 30 years.
Person opting in has to also pay the interest out from the PF so there is double whammy which is not getting captured in the numbers here.
Request if you could kindly factor in the same and make an edit in the post otherwise tremendous loss could get caused to people who are taking a very serious decision.
Sincere thanks nonetheless for all the hard work and all the posts that you have made on this topic though.
Regards
Section (3)(2) of EPS95 from EPFO says:
“The Central Government shall also contribute at the rate of 1.16 per cent. of the pay of the members of the Employees’ Pension Scheme and credit the contribution to the Employees’ Pension Fund :”
Will there be any updates to the above example calculations?
As per1994 amendment , 1.16% to be contributed by the employees.
Supreme Court in its judgment dated 04.11.2022 stayed on the clause for next 6 month
It is confirmed, employees will not pay 1.16% , how this will be compensated to EPFO – will be decided in 6 months time.
Thank you Anita for your prompt response.
Thanks Anita. It really helps to take decision to opt-in or not.
Can you please update the Table 4 with interest component also?.
It could be approximate, however, it will be more insightful to take a decision.
Thanks for your humble comment.
I will certainly updated with interest calculations
As per above calculation EPFO will get Rs 19.46 L from the pensioner and in return EPFO has to give pension @ Rs 85000/- per month. So, the fund, from where the pension is allocated will be finished within 2 years approx. Thereafter how pension will be given by EPFO?
Logically as per above illustration higher pension is possible?
That’s the whole issue and EPFO is reluctant to take a call.
Unless there will be Government Support to EPFO , it will be very difficult to implement higher pension scheme by the EPFO
On payment of Rs 19.46 L monthly pension of 85 k means annual interest of @ 55 %. Is it really practicable to get Gov. / EPFO to achive this appriciation. Except equitt no other instrument can provide such appriciation. Hence not very difficult but next to impossible
Sorry annual interest of @ 34 %. Not possible.
Since the joint option form is a must for exercising the option, you need to get it attested by your employer.
If the PF amount itself is not deducted from your actual salary, then you are not eligible. Instead, if the employer remitted the pension amount on the ceiling limit (out of the employer’s contribution of 12%), you are eligible to opt.
The last date to opt is 4th March 2023
Format of Annexures A & B by other companies will help.
Pl read this “Note: Interest on the amount indicated at 4(iii) is also required to be paid to EPFO towards Pension.” carefully. You will get your answer.
Even if interest is taken into account for 4(iii), considering avg life expectancy around 80 for Neeta, she’d be getting 2.1Cr(pre tax). How is this feasible ?
Govt. will get this money in 2023 from us and will be investing it for decades. That’s how.
But how do we trust the govt.? They are also trying to revive old pension scheme for govt employees – that financial hara-kiri is NOTHING in comparison to this pension scheme for corporate employees.