CA Deepak Jauhari
Employees’ Pension Scheme (EPS-95) offers pension on retirement, disablement, pension to widow and pension for nominees. This article explains how much EPS Pension you will get if you retire at the age of 58 years. Recently on 1st April 2019 Supreme Court has given the decision that the pension to be paid on actual salary rather than the capped salary (Rs 15000 or Rs 6500 per month.)
1. Overview of EPS or Employee Pension Scheme
The EPF pension or EPS is a pension scheme for the employees of organized sector. This pension scheme gives a guaranteed monthly pension after the retirement. Employee provident fund organization (EPFO) manages the pension account of all those who are contributing to EPF including private trust. The feature of Pension Scheme is as under:
I. Out of the employer’s monthly contribution of 12%, an amount @ 8.33% goes into EPS and rest of the amount to EPF. Suppose an employee has salary( Basic + DA ) of Rs. 1,00,000 per month and employer contribution is 12% then Rs 1250 ( i.e. 15000*.8.33 % ) will go to EPS and rest of the amount Rs 10750 will go to EPF as employer contribution .
II. Monthly contribution to EPS is restricted to 8.33% of 6500= Rs. 541 p.m. and from Sep 2014 Rs 1250 (8.33% of 15,000).
III. Lifelong pension is available to the member and upon his death members of the family are entitled for the pension.
IV. Pension is called Superannuation pension if one gets pension on retiring on attaining the age of 58 years
V. 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.
Vi. 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 the employment before that date.
VII. Maximum & Minimum Pension one can get is Rs 7,500 per month and Rs 1,000 per month.
VIII. Maximum service for the calculation of service is 35 years.
IX. 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.
X. 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 Pension Fund.
XI. EPS Pension is taxable and has to be considered under the head Income from Salaries.
XII. This EPS should not be confused with National Pension Scheme (NPS). NPS is another scheme for which separated deduction under section 80CCD of income Tax is available.
2. Pension based on joining before 15ThNov 1995 or after 15thNov 1995
Pension depends on your contribution to Pension Fund and your number of years of service. There are two ways in which pension can be calculated are explained as under :
a) If you joined after 15/Nov/1995
b) If you joined before 15/Nov/1995 but will retire after 15/Nov/1995.
a) Formula for pension you get if joined after 15.11.1995
For those who joined after 15 Nov 1995 the formula for calculation of Pension is simple. The formula of calculation of pension is,
EPS Pension = Average Salary X Number of Years Service
Number of Years of Service in calculating EPS Pension
Example 1. How much pension will Mr. X will get if he works for 14 years from 1 Jun 2015 and his average salary is Rs 20,000 p.m.
Mr. X started his job on 1 Jun 2015. He works for 14 years. His average salary is 20,000 per month but for pension service maximum salary considered is Rs 15,000 or Rs 1250 per month. So Mr. X’s pension from 2 Jun 2030 will be Rs 3000 (i.e.15,000 X 14)/70 )
Example 2: Mr. X renders maximum employment of 35 years, and maximum contribution of Rs 15000, the maximum amount of pension as per the Pension formula would be = 15000 * 35/70 = Rs 7,500 per month or Rs. 90,000(7500 * 12) per year.
b) How much EPS Pension will you get if you joined before 15.11.1995
For a person who joined EPF before 15.11.1995, Pension calculation following components:
(a)Past Service Benefit (b) Pensionable Service Benefit
Past Service: means the period of service rendered by an existing member from the date of joining Employees’ Family Pension of 1971 till the 15th November, 1995.
Pensionable service means period of service rendered from 16 Nov 1995.Same as the calculation of pension who joined after 15.11.1995
Here, the formula of calculation of pension for those who joined before 15/Nov/1995 is as under:
The pension for someone who joined before 15/Nov/1995 is calculated in two parts.
EPS Pension: Past Service Computation
To calculate EPS pension amount before 15/Nov/1995, Table A is used which shows Pension amount based on Basic Salary and number of years of service till 15/Nov/1995. The pension is fixed according to the pay band and service period till 15/Nov/1995. If a person had basic salary of Rs 3000 on 15/Nov/1995, and he had worked for 16 years till 16/Nov/1995, then using the table A, he would get 135 pensions per month for service before 16/11/1995.
|Years of Past Service||Salary Up to ₹ 2500||Salary> 2500|
|Up to 11 years||80||85|
|Above 20 years||150||170|
Enhanced Pension for retirement years after 15/Nov/1995
The employee, who retires after 15/Nov/1995 gets enhanced pension of the past period. If any employees attains his 58 years after 16.11.1995, his pension amount will be multiplied by a factor stipulated in table “B” according to the difference between 16.11.1995 and the retirement date i.e. date of completion of 58 years. For example, If the above person, who worked for 16 years before 15/Nov/1995 retires on 20/11/1996, he would get the pension of Rs 151.47 (135 x 1.122).
TABLE B: Factor for Computation of Past Service Benefit
|less than 1 year||1.039|
|less than 2 year||1.122|
|less than 3 year||1.212|
|less than 4 year||1.309|
|less than 5 year||1.413|
|less than 6 year||1.526|
|less than 7 year||1.649|
|less than 8 year||1.781|
|less than 9 year||1.923|
|less than 10 year||2.077|
|less than 11 year||2.243|
|less than 12 year||2.423|
|less than 13 year||2.616|
|less than 14 year||2.826|
|less than 15 year||3.052|
|less than 16 year||3.052|
|less than 17 year||3.560|
|less than 18 year||3.845|
|less than 19 year||4.152|
|less than 20 year||4.485|
|less than 21 year||4.843|
|less than 22 year||5.231|
|less than 23 year||5.649|
|less than 24 year||6.101|
|less than 25 year||6.589|
|less than 26 year||7.686|
|less than 27 year||7.686|
|less than 28 year||8.301|
|less than 29 year||8.965|
|less than 30 year||9.682|
|less than 31 year||10.457|
|less than 32 year||11.294|
|less than 33 year||12.197|
|less than 34 year||13.173|
Example of EPS Pension Calculation for those who joined before 15.11.1995
3. Decision of Supreme Court for Calculation of Pension on Actual Salary
On April 1, 2019 the Supreme Court of India upheld the Kerala High Court verdict on monthly pension from the Employees’ Pension Scheme 95 (EPS 95). The High Court had scrapped an August 2014 notification by the Employees’ Provident Fund Organization (EPFO) and asked EPFO to give full pension to subscribers of the EPS based on the actual salary rather than on the basis of capped salary
Presently the EPS pension is very low because EPFO capped the salary used for computation of pension at Rs 15,000 per month and Rs 6500 pm
Example: – Mr. X starts service with annual salary of Rs 6,00,000/- (Basic +DA) for 20 years with increase of 5% p.a.
Table Showing Calculation of contribution on restricted salary and actual Salary (with revised pension on actual salary)
4. Approx. Pension based upon the actual salary as per the decision of SC.
5. Conclusion: By looking to the above figure of ROI, it looks fair enough that we should go for higher pension. But it depends upon many other factors such as:
1. After the death of subscriber the spouse gets only 50% pension and after her death the money is lost.
2. Option of investment of the differential amount paid for getting higher pension should also be explored to have a higher rate of return than the investment in pension.
3. Viability of the scheme in the context of EPFO for giving the pension at a rate higher than the market rate.
4. Calculation is based on assumed figure of salary. The calculation and decision to be taken depends on person to person based on his actual data.
Disclaimer Views expressed in the article solely belongs to author and does not belong to author’s organization.
Author’ mail id Author is working in a Nav Ratna PSU and can be reached at [email protected]