EPS Calculation: How much pension will a ₹25,000 salary limit generate over 20 years, and what will the in-hand salary be?
The Union Cabinet has taken a major, historic decision to raise the wage limit under the Employees' Provident Fund (EPF) and Employees' Pension Scheme (EPS) from ₹15,000 to ₹25,000 per month. This decision has brought smiles to the faces of millions of salaried employees across the country.
The biggest 'game-changer' aspect of this decision concerns the monthly pension (EPS Pension) you receive after retirement. Previously, due to the ₹15,000 salary cap, private sector employees received a very low pension upon retirement; however, with the implementation of the new ₹25,000 wage ceiling, your pension will see a significant jump of 66.6%.
Formula determined by EPFO for EPS pension:
Monthly Pension = (Pensionable Salary × Pensionable Service) ÷ 70
* Pensionable Salary: The government sets an upper limit (ceiling) for this. Until now, it was ₹15,000, but it has now been raised to ₹25,000.
* Pensionable Service: The number of years you have worked. (According to the rules, if you have served for 20 years or more, you receive an additional 'service bonus' of 2 years).
Company's Contribution
12% of your basic salary goes into the PF, and the company contributes an equal 12%. The company's 12% contribution is allocated as follows:
1. 8.33% goes to the EPS fund: Under the old rule (with the ₹15,000 limit), the company contributed a maximum of ₹1,250 per month to your pension fund; however, under the new rule (with the ₹25,000 limit), ₹2,088 will be deposited into your fund.
2. 3.67% goes to the EPF account.
How much pension will you receive after 35 years of service?
Years of Service Bonus Years Calculated Years Pension at Old Ceiling (₹15,000) Pension at New Ceiling (₹25,000) Monthly Pension Increase
20 years 2 years (bonus) 22 years ₹4,714 ₹7,857 PLUS ₹3,143
It is worth noting that 2 bonus years of service have been added to the pension calculation for those with more than 20 years of service.
Example
Suppose your basic salary is ₹30,000 and you have served for 20 years. With the new rules in effect, the pensionable salary will be considered ₹25,000. Based on the formula (25,000 x 20 / 70), your pension will be ₹7,142 per month. This means you will gain ₹3,143 under the scheme with the ₹25,000 salary limit.