New Delhi: If a family member works for a private company and has PF contributions deducted, this news will prove very useful. Are you aware that the Central Government recently notified the Employees’ Pension Scheme (EPS) for EPFO members? Consequently, several questions regarding pension calculation have arisen.
The biggest question on the minds of approximately 6 crore EPFO members is: what guaranteed monthly pension amount can one expect after retirement based on different salary brackets? The government provides pension provisions for retired employees covered under the PF scheme.
Know the old formula for calculating the monthly pension.
A point of relief here is that the old formula for calculating monthly pension and the rule requiring a minimum of 10 years of service remain unchanged under the EPS. These rules have been maintained as they were. To understand this in simple terms: if your pensionable salary is ₹10,000 or ₹20,000, how much monthly pension would you receive after 10 years of service?
According to EPFO rules, an employee must complete a minimum of 10 years of pensionable service to qualify for a regular monthly pension. The monthly pension facility becomes available upon attaining the age of 58. There is also an option to avail of an early pension after the age of 50, albeit with some deductions.
What happens if the service is less than 10 years old?
If an employee’s total service is less than 10 years, there is no provision for a monthly pension. However, if you obtain a ‘Scheme Certificate’ and merge your service with a subsequent job, you can withdraw the entire EPS accumulated amount as a lump sum.
How is the pension calculated?
Your monthly pension is determined by the EPFO based on a fixed formula:
Monthly Pension = Pensionable Salary × Pensionable Service / 70
Pensionable Salary refers to the average of the basic salary and Dearness Allowance (DA) drawn during the last 60 months. Generally, the maximum pensionable salary limit for the EPS is set at ₹15,000. However, in many cases, it is calculated based on actual salary or a fixed standard (such as ₹10,000 or ₹20,000).
If, for instance, your average basic salary and DA amount to ₹10,000, your pension would be calculated as follows based on your years of service:
For 10 years of service, the calculation is: (10,000 × 10) ÷ 70 = ₹1,428.
You would receive a monthly pension of approximately ₹1,428.
Pension for a salary of ₹20,000
Calculation: (10,000 × 20) ÷ 70 = Pension amount of approximately ₹2,857 per month.
Pension for the maximum service period of 35 years
Calculation: (10,000 × 35) ÷ 70 = ₹5,000.
Monthly pension: You could receive a maximum pension of ₹5,000 per month.
Calculation 2: If your pensionable salary is ₹20,000
If your actual salary is ₹20,000 and your contribution is based on the actual salary (exceeding the ceiling limit), the calculation would be as follows:
