EPS (Employee Pension Scheme)

What is Employee Pension Scheme (EPS)?

The Employee Pension Scheme (EPS) is a retirement benefit plan introduced by the Indian government in 1995 to provide financial security to employees after they stop working. It is part of the Employees’ Provident Fund (EPF) framework, which ensures both savings and pension benefits for employees.

When your employer contributes 12% of your basic salary to your EPF account, a portion of that contribution (8.33% of the basic salary) is automatically directed to the EPS. Over time, this builds a fund that you can access as a monthly pension when you have reached 58 years of age. What’s great about EPS is that you do not need to contribute separately. It is all managed through the employer’s contributions.

Responsibilities of Employers

Employers ensure the successful implementation of the EPF pension scheme and have been assigned the following responsibilities:

• Employers must register eligible employees under the EPS scheme as part of their overall compliance with the Employees’ Provident Fund (EPF) regulations. They must also bear all administrative costs under the scheme.
• It is the employer’s responsibility to deduct and deposit 8.33% of the employee’s salary towards the EPS account. The salary (Basic pay + Dearness Allowance) should not exceed ₹15,000. This contribution must be made within 15 days of every month’s end along with their share of EPF contributions to avoid penalties.
• In addition to the employer contribution, the Central Government deposits 1.16% of the employee’s salary to the EPS account.
• In the case of employees working under a contractor, the principal employer is responsible for making the EPS contributions.
• The EPS scheme also provides that if an employee becomes disabled (totally or permanently) during their service period, the employer must make monthly pension contributions regardless of the duration.

Benefits of Employee Pension Scheme

The EPFO pension scheme offers several benefits aimed at providing financial security to you as an employee and your family.

• If you have completed at least 10 years of service and have reached the age of 58, you can secure a stable income stream during retirement. This will help you maintain your financial independence after retirement.
• You can also opt for a reduced pension from the age of 50 in case of any financial emergency before reaching the standard retirement age.
• In case of total and permanent disability during service, employees are eligible for a monthly pension irrespective of their service duration. Such employees can use this amount to maintain financial stability even if they are unable to work.
• The scheme allows you to withdraw the accumulated amount using Form 10C if you leave service before completing 10 years. You also have the option to obtain a Scheme Certificate, which preserves your pension benefits for the future.
• The EPS scheme offers a family pension to your spouse and children in case of your unfortunate demise. When you combine the EPS scheme with life insurance, you can rest assured about your family’s well-being in your absence.

How to Calculate Your Pension Under EPS

Interested in knowing how much amount you will receive under the Employee Pension Scheme? The pension amount depends on your pensionable salary and service and is calculated as follows:

Pensionable Salary

A pensionable salary is calculated by taking the average salary of the last 60 months before you exit the EPS scheme. It cannot exceed ₹15,000 for a month.

If there are certain non-contributory periods in the said 60 months, you will get the benefit of those periods as well. For instance, let’s say that you join a company on 5th April with a monthly salary of ₹15,000. Though you will receive a salary of ₹13,000 (excluding the first 4 days), the pension will be calculated based on the total salary of ₹15,000. The employer will deposit an amount of ₹1250 (8.33% of ₹15,000) to the employee’s EPS account.

Pensionable Service

Pensionable service is the duration for which you have rendered services to different employers. Service periods under each employer are added and taken into consideration. To avoid any errors, you should get the EPS Scheme certificate issued by your old employer and submit it to the new employer every time you switch jobs.

If you have completed 20 years of service, 2 years will be added as bonus. This means that pensionable service will be equal to 22 years in this case.

Furthermore, let’s say that you have withdrawn from the EPF corpus before completing 10 years and switched jobs. In this case, the service period will be reset to zero and you will have to restart your EPF contributions from the start.

The assessment of the pensionable service duration is done on a 6-month basis. This means that if you have been in service for 5 years and 4 months, the pension amount will be calculated on the basis of 5 years. On the other hand, if you have worked for 5 years and 7 months, calculation will be done based on 6 years.

Eligibility Criteria Applicable for EPS

Now that you know what is EPS, EPS full form, and its benefits, you should check whether you meet the eligibility criteria. You can then create your retirement plans accordingly.

• You must be a member of the EPFO (Employees’ Provident Fund Organization).
• You must have been employed for at least 10 years.
• If you want to receive an early pension, you must be at least 50 years of age. On the other hand, you must have reached 58 years of age to receive a regular pension.
• Your salary (basic pay + dearness allowance) should not exceed ₹15,000 per month at the time of joining the EPS.

Types of pensions in the Employees’ Pension Scheme

The government has included different types of pensions under the EPS scheme for different life scenarios and family structures. They are discussed below.

Child Pension

The child pension under the Employee Pension Scheme provides financial assistance to the children of a deceased EPS member. This pension is payable to up to two children of the deceased until they reach the age of 25. Each child is entitled to receive 25% of the widow’s pension amount. In cases where the child is disabled, the pension is extended for their lifetime.

Widow Pension

The Widow or Vridha pension supports the legally married spouse of the deceased EPS member and continues until the widow’s death or remarriage. The pension amount depends on the deceased member’s last drawn salary and their total years of service, with a minimum pension of ₹1,000 per month. In the case of two widows, the eldest widow is eligible for this pension.

Reduced Pension

Members aged between 50 and 58 years, with at least 10 years of service, can opt for this benefit. However, the pension amount is reduced by 4% for every year the pension is withdrawn early. For instance, if an individual withdraws pension at 55 years old (3 years early), they will receive pension at the rate of 88% (100% - 3*4) of the original amount.

Orphan Pension

The orphan pension provides financial security to children who lose both parents. Each orphan receives 75% of the widow’s pension amount. The pension is payable until the child turns 25 years old, and for disabled orphans, the benefit is extended for their entire lifetime.

Types of Pensions Forms Under EPS in India

Like every government scheme, the Employee Pension Scheme also has certain forms that must be filled. They help the relevant authorities verify your details and process your benefits without any errors.

Conclusion

Looking ahead, you must take proactive steps to make the most of your Employee Pension Scheme benefits. Start by keeping your employment records in order and ensure you get a scheme certificate whenever you switch jobs. Regularly check your EPS contributions through the EPFO portal and update your nomination details as needed. You should also check EPF applicability under the Income Tax Act 1961 and adopt tax-saving strategies.

FAQs on Employee Pension Scheme