EPS Pension Explained: How Much You Can Receive & Key Rules To Know

Retirement planning is one of the most crucial aspects of financial security, and the Employees’ Pension Scheme (EPS) has been designed to provide a safety net for workers in the organised sector. Introduced in 1995, the scheme works alongside the Employees’ Provident Fund (EPF) and offers members a pension benefit after retirement. Both existing and new employees covered under the Employees’ Provident Fund Organisation (EPFO) are eligible. This article explains how the scheme works, the eligibility criteria, pension calculations and the maximum pension an employee can receive under EPS.

Contribution Structure Towards EPF And EPS

Under the EPF framework, both the employee and the employer contribute 12 per cent of the employee’s basic salary and dearness allowance. However, not the entire contribution goes directly to the provident fund account. A significant part of the employer’s share is diverted to the Employees’ Pension Scheme. Specifically, 8.33 per cent of the employee’s salary, capped at a fixed threshold, goes towards EPS. The remaining portion continues to accumulate in the EPF account, where it earns interest as per prevailing government-declared rates.

Eligibility For Receiving EPS Pension

To become eligible for pension benefits under EPS, a member must meet certain conditions. First, the individual has to be a registered member of the EPFO. Secondly, they should have completed a minimum of 10 years of continuous service. Finally, the pension becomes payable upon reaching the age of 58. However, according to experts, there are provisions for early withdrawal at a reduced rate from the age of 50, while members can also defer their pension up to 60 years for enhanced benefits.

Flexibility Of Withdrawal And Deferral

EPS offers employees flexibility in terms of pension withdrawal. Members who choose to take pension benefits from the age of 50 will receive a reduced amount compared to the full pension payable at 58. On the other hand, employees may defer their pension for up to two years after reaching 58. In such cases, an additional rate of 4 per cent is added for each deferred year, effectively rewarding those who choose to wait before drawing their pension.

Minimum And Maximum Pension Amounts

One of the important features of EPS is that it provides a minimum pension to ensure that retirees receive a basic income. The minimum pension currently stands at ₹1,000 per month. However, the maximum pension amount is restricted by the statutory ceiling on pensionable salary. Presently, the maximum pensionable salary is capped at ₹15,000 per month, and this limit has a direct impact on how much pension a retiree can draw, regardless of their actual earnings.

Pension Calculation Formula Explained

The calculation of pension under EPS follows a fixed formula:

(Pensionable Salary × Pensionable Service) ÷ 70

Here, pensionable salary is taken as the capped limit of ₹15,000 per month. Pensionable service refers to the total number of years an employee has worked while contributing to EPS. For instance, an employee with 25 years of service would receive around ₹5,357 per month, while someone completing 35 years or more would receive ₹7,500 per month as their maximum pension benefit.

No Interest On EPS Contribution

It is important to note that unlike EPF, which earns interest as per declared rates, the EPS component does not accrue any interest. For example, if an employee’s EPS contribution is ₹1,250 out of the 8.33 per cent deduction, only that amount is credited to their EPS account. The balance portion from the employer’s contribution continues in the EPF account, where it grows with compounded interest.

Why EPS Matters For Retirement Planning

EPS serves as a crucial pillar of retirement income for employees in the organised sector. While the maximum pension is modest when compared to private retirement savings products, it provides a reliable and guaranteed monthly income that acts as a safety net. Experts suggest that employees should not solely rely on EPS but consider it as part of a broader retirement strategy, supplementing it with other investment avenues such as provident fund contributions, insurance and systematic savings.

Disclaimer: This article is meant for informational purposes only and should not be treated as investment advice. Readers are encouraged to consult financial experts or advisors before making retirement planning decisions.