How much Pension will you get on your Retirement from EPS

Many employees especially young employees don't know that their employer is contributing for their retirement. As an employee we contribute 12% of our Basic+DA towards Employee Provident Fund. Same portion of amount is contributed by the employer. However, employer contribution is not totally contributed to the PF amount and some portion of it goes towards Employee Pension Scheme, EPS.




Employer's contribution is divided as per below table -

Employee Social Security Scheme	Employee Contribution	Employer Contribution
EPF (Employee Provident Fund)	12%	3.67%
EPS (Employees’ Pension Scheme)	Nil	8.33%
EDLIS (Employees’ Deposit Linked Insurance)	Nil	0.5%
EDLIS administrative charges	Nil	0.01%
EPF administration charges	Nil	1.1%

As you can see that major portion of the employer's contribution goes towards EPS. This EPS contribution will get you pension once you are retired. 

If a employee has completed more than 10 years in service than only he is eligible for pension else he can withdraw the amount. I will discuss in another post how much amount he will get but for now i will stick to the pension amount.

Types of pension 

Superannuation Pension - If a person has contributed for 10 years or more and retires on attaining the age of 58 years than he is entitled to get the pension on retirement.

 Early Pension - If a person has contributed for 10 years or more and takes voluntary retirement before attaining the age of 58 years than also he is entitled to get the pension.

Before i explain how much pension you will get, i will explain few terms and factors which are necessary to understand.

Determination of Eligible Service

The total service should be rounded off to the nearest year. The fraction of service for six months or more shall be treated as one year and the service less than six months shall be ignored. So, if an employee has worked for 15 years and 7 months than the eligible service will be considered as 16 years. In case the employee has worked for 15 years and 4 months than the eligible service will be 15 years only.

Determination of Pensionable Service

The pensionable service is determined by the number of years your employer has contributed on your behalf. If your employer failed to deposit the amount then such months are not considered for calculation of service. Also, if an employee retires on attaining 58 yrs of age and completed 20 yrs of service or more, his pensionable service will be increased by 2 years for calculation purpose. 

For example, if an employee has worked for 22 yrs and 7 months than after rounding off it will become 23 yrs. Since there is a bonus of 2 yrs on completion of 20 yrs, his pensionable service will become 25 yrs.

Determination of Pensionable Salary

• Pensionable Salary is the average of last 12 months salary from which you contributed towards EPS. These 12 months are the last 12 months before retirement and are defined as 12 months preceding the date of exit from the membership of the Employees' Pension Fund.
       
• If an employee has not received full salary during the last 12 months than the average of the previous 12 months full pay drawn by him during the period for which contribution to the pension fund was recovered, shall be taken into account as pensionable salary for calculating pension. This means if for two you didn't receive full salary than those two months will not be counted, instead of that those two months will be counted where you have received full salary.
      
• If during the last 12 months employee has not contributed to EPS and has drawn salary for a part of the month, the total wages during the 12 months span shall be divided by the actual number of days for which salary has been drawn and the amount so derived shall be multiplied by 30 to work out the average monthly pay. For example - you have got salary of Rs 10000 for 10 days and 5000 for 5 days than your pensionable salary will be ((10000 + 5000) / 15) * 30 = 30000.
      
• Most of the employer restrict pension contribution to the mandatory 8.33% or ₹ 1250 (statutory ceiling), whichever is minimum. In such cases the pensionable salary would not be more than ₹ 15000 even though you drawing ₹ 60,000 per month (earlier this limit was ₹ 6500, hence statutory ceiling was ₹ 541 instead of ₹ 1250). If your employer is contributing towards EPS 8.33% of  ₹ 60,000 which comes to be ₹ 4998 than your pensionable salary will be ₹ 60,000.

Calculation of Monthly Pension

Minimum pension a person can receive under EPS is ₹ 1000. Monthly pension need to calculated in accordance to the below formula.

Monthly member’s pension     =   (Pensionable salary X Pensionable service) / 70

Example 1

Let's assume Mr. Ashish has worked for 20 yrs and 2 months and retired. For the simplification of calculations assume that he was drawing monthly pay of ₹ 60,000 (Basic + DA). Amount his employer was contributing towards EPS was ₹4,998 (8.33% of ₹ 60,000). In my understanding, this is the case with all government employees.

	Name Of Employee	Ashish		Monthly Salary	60000
	Total Service	20 yrs 2 months		Employer EPS Contribution	4998
	Eligible Service	20 yrs		Monthly Pension	(60000 x 22) / 70 = 18857
	Pensionable Service	22 yrs
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Example 2

Let's assume Mr. Ashish has worked for 20 yrs and 2 months and retired. For the simplification of calculations assume that he was drawing monthly pay of ₹ 60,000 (Basic + DA). Amount his employer was contributing towards EPS was ₹ 1250 (8.33% of ₹ 15,000 which is statutory limit and not on ₹ 60,000). This is the case with maximum private employees.

	Name Of Employee	Ashish		Monthly Salary	60000
	Total Service	20 yrs 2 months		Employer EPS Contribution	1250
	Eligible Service	20 yrs		Monthly Pension	(15000 x 22) / 70 = 4714
	Pensionable Service	22 yrs
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For all the employees who have joined Employee Pension Scheme, EPS before 16th November 1995 can check this link for EPS Calculation.