Employees Pension Scheme – Benefits & Features

In 1995, the Employees' Provident Fund Organisation (EPFO) started the Employee Pension Scheme (EPS) as a social security scheme. The EPS is highly beneficial for employees working in the organized sector since it provides them with a secure post-retirement pension.

So, where does this pension come from? The EPS is tied to the Employees' Provident Fund (EPF). Each month, the employer and the employee individually contribute 12% of the employee's salary towards the EPF. The employee's entire share goes towards the EPF. On the other hand, 8.33% of the employer's share goes towards the Employees' Pension Scheme (EPS), and the remaining 3.67% goes towards the EPF.

Eligibility criteria for employees’ pension scheme

To avail the benefits of employees’ pension scheme, the applicant must fulfill the following criteria-

1. The applicant must be a member of EPFO.

2. The applicant must have completed 10 years of service.

3. The applicant must have reached the retirement age of 58 years.

4. The applicant can withdraw his EPS at a reduced rate from the age of 50 years.

5. The applicant can defer his pension for 2 years (up to 60 years of age). Post this, he will get a pension at an additional 4% rate each year.

How to calculate your pension under EPS

The pension amount in the PF depends on the pensionable salary and pensionable service of the employee. It is calculated using the following formula-

Member’s monthly pension = (Pensionable salary x Pensionable service)/70

1. Pensionable salary

Pensionable salary is the average monthly salary withdrawn by the member in the last 60 months before exiting the Employees’ Pension Scheme. 

If there are any non-contributory days in the last 60 months of employment, such days will not be considered and the benefit of those days will be given to the employee. 

For example, if an employee has a salary of Rs. 21,000 and joins the organization on 4^th of the month, then the salary of that month would be Rs. 18,900 for 27 days (Rs. 700 per day less for three days). However, EPS monthly salary will consider 30 days, i.e., Rs. 21,000.

So, the amount contributed to the EPS account by the employer would be 8.33% of Rs. 21,000 = Rs. 1750.

2. Pensionable service

The actual service period of the employee or member is the pensionable service. The pensionable service period is determined by adding all the service periods served by the member under different employers. The employee must get the EPS scheme certificate issued and submit to the new employer every time he switches a job. 

The pensionable service is considered and rounded off on a 6-month basis. The minimum pensionable service period is 6 months. So, for instance, if the service period is 7 years 4 months, the pensionable service period considered will be 7 years. 

However, if the service duration is 7 years and 10 months, the pensionable service period will be 8 years.

Moreover, if the member withdraws the EPS corpus before completing a service period of 10 years and switches the company, the service period will be set to zero and the member has to start fresh. 

Another important consideration is that the employee gets a bonus of 2 years after completing 20 years of service.

Let us now explore the features and benefits of the EPS. 

Features of the EPS

• To avail of the EPS, you should be a member of EPFO.
• This scheme is mandatory for employees who earn a basic salary and DA of Rs. 15,000 or less. So, if you are a member of the EPFO and fall under this pay scale, you get automatically enrolled for the EPS.
• To withdraw from your EPS fund, you should have completed at least ten years of service. Note that these ten years need not be continuous. 
• You must be at least 58 years old to be eligible for a pension. However, you can withdraw your EPS at a reduced interest rate starting at 50 years. Or, you can defer it by two years and then receive an additional rate of 4% per year. 

Benefits of the EPS

1. Guaranteed returns: EPS is a government-run initiative. So, there are no risks to investing in the scheme, and you will receive guaranteed returns. The minimum monthly pension amount that you will receive is Rs. 1,000. As per reports, the government plans to increase this to Rs. 2,000. When you want to start receiving your pension, you have to fill out Form 10D and receive an EPS Certificate. 

2. Your family will receive your EPS after your death: In case of your death, your spouse will continue to receive the EPS amount until their death. After that, your children will receive the pension amount until they reach the age of 25 years. If the children are physically challenged, they will receive the pension amount until their death.

3. You will receive your EPS pension on total disablement during your service: If unfortunately, you become disabled totally and permanently during your service, you are entitled to a monthly pension. This benefit is applicable even if you have not yet completed your pensionable service period. Your employer has to deposit their share of funds in your EPS account for at least one month to be eligible for the pension. Then, this pension is payable for your lifetime. 

Types of pensions under employees’ pension scheme

There are different pensions under the EPS pension scheme as follows-

1. Widow pension

Under the Vridha pension or widow pension, the widow of an EPS member is eligible for pension. The pension is payable till the death or remarriage of the widow. In case of more than one widow, the pension amount is given to the eldest widow.

2. Child pension

The surviving children in the family are eligible for child pension in the unfortunate case of the death of the member, in addition to the widow pension. The monthly pension amount is 25% of the widow pension and payable to a maximum of two children till they attain the age of 25 years.

3. Orphan pension

If a member passes away and has no surviving widow, the children of the member receive an orphan pension of 75% of the value of monthly widow pension. The benefit is available to two children from oldest to youngest.

4. Reduced pension

A EPFO member who has completed 10 years of service and is at least 50 years of age but less than 58 years can withdraw an early pension. However, the amount payable is reduced at 4% for every year less than 58 years.

For instance, if the member withdraws the monthly reduced pension at the age of 53 years, he will get the pension at the rate of 80% (100%- 4x5) of the original pension amount.

Forms for EPS scheme

The member or the survivor of EPFO member needs to fill in the following forms to avail the benefits of the EPS scheme-

In conclusion

You can check your current Employees' Pension Scheme (EPS) deposit amount through the EPF Passbook portal. Use your EPF member Id to log in. Do you need to arrange quick funds for immediate expenses? Turn to Tata Capital. We offer loans at affordable interest rates and flexible EMI options. Visit our website or download our investment app today.

FAQs on Employees Pension CScheme

What is the current employee pension scheme?

The Employee Pension Scheme (EPS) provides pension benefits to employees in organized sectors after retirement or death. It is managed by the EPFO and funded by a portion of the employer’s contribution.

What is the difference between employee pension scheme and EPF?

EPF is a retirement savings scheme where both employer and employee contribute. EPS, on the other hand, offers pension benefits and is funded solely by the employer's 8.33% contribution from the EPF.

Is EPS mandatory for all employees?

Yes, EPS is mandatory for all employees who earn a basic salary of up to Rs. 15,000 per month and are members of the Employees' Provident Fund (EPF).

What is a pension contribution in EPF passbook?

The pension contribution in the EPF passbook is 8.33% of the employer's contribution that goes towards the Employee Pension Scheme (EPS), used to provide pension benefits after retirement.