The Employee Pension Scheme (EPS) is a pension program offered by the Employees’ Provident Fund Organization (EPFO) in India. It is designed to provide long-term financial security to employees after retirement. The scheme is part of the broader Employees’ Provident Fund (EPF) structure, and its contributions are made by both the employer and the employee, although only the employer’s contribution is allocated to the EPS.
Here’s an overview of the Employee Pension Scheme (EPS) for Indian employees:
1. Eligibility for EPS
- Mandatory for EPF Members: Employees who are members of the Employees’ Provident Fund (EPF) are automatically enrolled in the EPS.
- Salary Cap for Contribution: Employees earning a basic salary of ₹15,000 or less per month are eligible for contributions under the scheme. Employees earning more than this amount may also be covered, but there is a cap on the pensionable salary.
- Minimum Service Requirement: To be eligible for a pension, an employee must have completed at least 10 years of service.
2. Contributions
- Employer Contribution to EPS:
- Out of the employer’s contribution of 12% towards EPF, 8.33% of the employee’s basic salary (capped at ₹15,000 per month) is directed to the EPS.
- The maximum contribution per month is ₹1,250 (8.33% of ₹15,000).
- Employee Contribution: The employee’s 12% contribution is directed entirely to the EPF, and no contribution is made directly to the EPS from the employee’s side.
3. Pension Calculation
The pension amount is calculated using a formula based on the employee’s salary and the number of years of service:Pension=Pensionable Salary×Pensionable Service70\text{Pension} = \frac{\text{Pensionable Salary} \times \text{Pensionable Service}}{70}Pension=70Pensionable Salary×Pensionable Service
- Pensionable Salary: The average of the last 60 months’ salary (basic + dearness allowance) prior to retirement or leaving the service.
- Pensionable Service: The number of years the employee has contributed to the EPS (with a maximum of 35 years considered for calculation).
Example: If an employee has a pensionable salary of ₹15,000 and 20 years of service, the pension would be:Pension=15,000×2070=₹4,285.71 per month\text{Pension} = \frac{15,000 \times 20}{70} = ₹4,285.71 \text{ per month}Pension=7015,000×20=₹4,285.71 per month
4. Types of Pensions under EPS
- Superannuation Pension: Payable when the employee retires at the age of 58, provided they have completed at least 10 years of service.
- Early Pension: An employee can opt for early pension after turning 50, provided they have completed 10 years of service. However, the pension amount is reduced by 4% for every year the pension is taken before the age of 58.
- Disability Pension: If an employee becomes permanently disabled during their service period, they are eligible for a pension without any minimum service requirement.
- Widow Pension: Payable to the spouse of a deceased employee who was an EPS member.
- Child Pension: Payable to the children of a deceased employee along with the widow pension, up to two children at a time until they reach 25 years of age.
- Orphan Pension: Payable to the children of a deceased employee if there is no surviving spouse.
5. Withdrawal Benefits
If an employee does not complete the minimum 10 years of service, they can withdraw the EPS contribution upon leaving employment. The withdrawal benefit is calculated based on the number of years of service and a predefined table by the EPFO.
6. Benefits on Death of Employee
- Widow Pension: If an EPS member dies while in service or after completing 10 years of service, the widow receives a pension. The amount is 50% of the pension the employee would have received.
- Children’s Pension: Additional 25% of the widow pension is payable to up to two children until they reach 25 years of age.
- Orphan Pension: In the absence of a surviving spouse, the children receive 75% of the member’s entitled pension.
7. Pension after Retirement
- The pension is paid monthly for the lifetime of the employee, starting from the age of 58.
- Employees can delay pension withdrawal up to the age of 60 for a higher pension.
8. Important Points to Note
- No Pensionable Salary Beyond ₹15,000: Even if an employee earns more than ₹15,000, the pension calculation is capped at this amount.
- No Employee Contribution to EPS: The entire contribution comes from the employer’s side.
- Non-transferable: The EPS pension is non-transferable, meaning employees cannot carry it forward in the form of cash or other instruments.
The Employee Pension Scheme (EPS) ensures financial stability for employees post-retirement, providing a modest pension based on salary and years of service. It is particularly valuable for employees in the organized sector who fall under the EPF system.