A guide to Employee Pension Scheme

Creating a source of income after retirement is important so that you can continue your lifestyle undisturbed without making any financial compromise. In fact, if you have amassed a retirement corpus, you can fulfil your life dreams once you are free from other financial liabilities. Given the importance of a retirement fund, the Employees’ Provident Fund Organisation (EPFO) introduced the Employees’ Provident Fund (EPF) Scheme. Later on, in the year 1995, the Employee Pension Scheme (EPS) was also launched to ensure that you receive a lifelong pension after you retire. While many of you are familiar with the concept of EPF, the Employee Pension Scheme is not studied in detail. So, let’s understand what the scheme is all about –

What is the Employee Pension Scheme?

Employee Pension Scheme is a scheme of pension for employees working in the organized sector. As per the provisions of the EPF Act, 12% of your basic salary is invested in the EPF Account. Your employer also contributes an equal amount to the EPF Account.

However, from the employer’s share of contribution, 8.33% of the contribution is invested in Employee Pension Scheme and the remaining is invested in the EPF Account. Thereafter, after you attain 58 years of age, the balance accumulated in the Employee Pension Scheme is used to pay you lifelong annuities. Thus, while EPF Account creates a retirement corpus, Employee Pension Scheme ensures that you get annuities after you retire.

Features of the Employee Pension Scheme

Under the Employee Pension Scheme, the following features are notable –

  1. Only a part of the employer’s contribution is directed towards the EPS scheme. Your contribution is entirely invested in the EPF Account
  2. There is a limit on the investment which can be done towards the Employee Pension Scheme. This limit is lower of INR 1250/month or 8.33% of the employer’s contribution to the EPF Account
  3. Investment in the scheme continues till you reach 58 years of age
  4. You can start receiving a reduced pension amount after you reach 50 years of age
  5. You can also postpone the date of receiving annuities. Deferment is allowed for two years till you reach 60 years of age. If you defer receiving pensions, you get an additional interest rate of 4% on the pension amount
  6. Besides the employer’s contribution, the Government also contributes 1.16% of your monthly salary towards your EPS account

Who is eligible to join the Employee Pension Scheme?

You can join the EPS scheme if you fulfil the below-mentioned criteria –

  1. You should be a member of EPFO
  2. You should have worked for a minimum of 10 years even though the service was not continuous
  3. You should attain 58 years of age to qualify to receive annuities

 

Difference between EPF and EPS

 

Many of you confuse EPF with EPS but both these concepts are different from one another. Let’s understand how –

EPF EPS
EPF aims to create a retirement corpus for you after you retire EPS aims to create a source of regular income through pensions after you retire
You and your employer both contribute towards the EPF scheme Only your employer contributes towards the EPS scheme
You contribute 12% of your basic salary including dearness allowance towards EPF while your employer contributes 3.67% of your pay towards EPF Employer’s contribution to the EPS scheme is 8.33% of your basic salary including dearness allowance
There is no limit to the EPF contribution. You can also contribute additional amounts to your EPF account if you want EPS contributions are limited to INR 1250 per month even if the amount is below 8.33% of your basic pay
Partial withdrawals are allowed from the EPF Account Partial withdrawals are not allowed from EPS

Calculation of pension amount under EPS

If you are wondering how much pension you would be able to receive under the Employee Pension Scheme, stop wondering. The amount of pension that you can receive can be calculated. There are two types of calculations for calculating the monthly pension depending on the period when you joined the EPS scheme. These are as follows –

  1. Calculation # 1 – If you have joined EPS scheme before 16th November 1995If you joined employment before 16th November 1995 and became a member of the EPS scheme, your pension would depend on your salary and the number of years of service that you have completed. The pension amount is fixed and is as follows –
    Completed years of service Monthly pension if the salary is up to INR 2500/month Monthly pension if the salary is above INR 2500/month
    10 years INR 80 INR 85
    11-15 years INR 95 INR 105
    15-20 years INR 120 INR 135
    More than 20 years INR 150 INR 170
  1. Calculation #2 – If you have joined the EPS scheme after 16th November 1995In case you became an EPS member after 16th November 1995, the monthly pension amount would be different. It would be calculated based on a formula which is as follows –

    Amount of monthly pension = (pensionable salary * pensionable service) / 70

    In this formula, the concepts of pensionable salary and service are defined below:

    1. Monthly Pensionable SalaryThe monthly pensionable salary is defined as the average monthly salary in the last 12 months of exiting the Employee Pension Scheme. The maximum pensionable salary per month would be restricted to INR 15,000 so that the employer’s contribution does not exceed INR 1250 (8.33% of INR 15,000 is INR 1250). Moreover, if, over the last year, there are some days for which you do not receive a salary, the proportionate salary of those days would be added to the monthly income when calculating the average. For instance, suppose you join work on the 15th of the month. In that case, for that month, you would receive only half the salary. However, the full months’ salary would be considered when calculating the pensionable salary.
    2. Pensionable serviceThe total period over which you have worked is considered to be your pensionable service. Even if you have changed jobs, the completed duration at each employer would be added to get the pensionable service duration. The total duration would be rounded off to the nearest year if the aggregate also includes months. So, if your total work duration is 12 years and 4 months, the pensionable service would be 12 years. But, if the duration is 12 years 6 months or above, the pensionable service would be 13 years. You also get a bonus of two years if you have completed 20 years of service. So, if you have 20 or more service years under your belt, an additional two years would be added to your pensionable service. However, if you have not completed 10 years of service and you withdraw the EPS corpus completely when you change jobs, the EPS contribution would become zero. Moreover, your service duration would also be started from zero even though you have worked before withdrawing the EPS amount.

When is a pension payable under Employee Pension Scheme?

The sole purpose of contributing to the Employee Pension Scheme is to provide you with pensions. So, when it is time for you to receive pensions, you should know when you can avail pensions.

There are different scenarios when you can avail pension. Let’s understand the scenarios in details –

  1. When you retire after attaining 58 years of age:After you attain 58 years of age and if you have provided a total of 10 years of service, you become eligible to receive pensions under the Employee Pension Scheme. To receive the pension you would have to fill up Form 10D to start availing pensions every month. The form can be filled using an EPS Scheme Certificate which is generated when you attain 58 years of age.
  1. When you retire after attaining 58 years of age but you have not completed 10 years of service:If you have attained 58 years of age but your aggregate years of service is below 58 years, you would not become eligible to receive monthly pensions under the Employee Pension Scheme. In that case, you can withdraw the accumulated corpus in the EPS scheme by filling up Form 10C.
  1. If you suffer from total disability during active working years:If you suffer from a permanent and total disability before attaining 58 years of age, you qualify to receive monthly pensions whether or not you have completed 10 years of service. In that case, you would receive pensions from the date of your disablement and the pension would continue throughout your life. Your employer should have deposited at least one month’s contribution to the EPS account for the pension to start. Moreover, you would also have to undergo a medical check-up to certify that you are unfit to continue working.
  1. If you suffer from total disability during active working years:The Employee Pension Scheme doubles up as a family pension scheme because it provides your family with pensions in case of your death.

Pensions are payable in the following cases –

  1. If you die in working age and your employer has contributed at least one month’s amount to the EPS scheme
  2. If you have completed 10 years of service but die before reaching 58 years of age
  3. If you have started availing monthly pensions at 58 years of age and then you die

Different types of pensions available in India:

Different types of pensions are payable under the Employee Pension Scheme. These are as follows:

  1. Widow pension

    Also called Vridha Pension, widow pension is the pension payable to the widow of an eligible EPS member. The pension is payable to the widow throughout her life. However, in the case of remarriage, the pension would stop when the widow is remarried. If there is more than one widow, the pension would be payable to the eldest. The minimum amount of pension is INR 1000. The pension amount is calculated as follows –

    Monthly pensionable salary in case of widow pension

    Amount of widow pension

    INR 6200

    INR 2021

    INR 6250

    INR 2026

    INR 6300

    INR 2031

    INR 6350

    INR 2036

    INR 6400

    INR 2041

    INR 6450

    INR 2046

    INR 6500

    INR 2051

    These are the sample rates. However, recently, the monthly pensionable salary has been increased to INR 15,000 from the earlier INR 6500. As such, the amount of widow pension in current times is higher.

  2. Child pension

    In case of death of the member, along with widow pension, a monthly pension is also payable for the dependent children of the member if they are below 25 years of age. The amount of pension is calculated as 25% of the widow pension per child and it is paid for a maximum of two dependent children. Moreover, the pension is payable until the child/children attain 25 years of age.

  3. Orphan pension

    If the EPS member dies and there is no surviving widow but children, an orphan pension would be payable for the surviving child/children. The pension would be payable for a maximum of two children and the amount would be 75% of the applicable widow pension.

  4. Reduced pension

    If you have completed 10 years of service and have attained 50 years of age, you can choose to start receiving pensions before reaching 58 years of age. If you do so, you get pensions at a reduced rate. The rate of pension is calculated as follows –

    Reduced rate = [100 – 2(58 – age from which you choose to receive pension)]

    So, if you want to receive pensions from 52 years of age, the rate of pension would be 88% which is calculated as [100 – 2 (58 – 52)]

Different types of pension forms under EPS:

In order to start receiving monthly pensions under the Employee Pension Scheme, you would need to fill and submit some forms to the EPFO. These forms and their purpose are as follows –

Types of forms

Purpose 

To be submitted by

Form 10C

  • To withdraw the accumulated money in the EPS corpus before completing 10 years of service
  • To avail EPS Scheme Certificate

EPS member

Form 10D

  • To avail pension after reaching 50 years of age
  • To receive widow pension
  • To receive child pension
  • To receive an orphan pension

EPS member/nominee/widow/children

Life Certificate

  • To certify that you are alive
  • The form is to be submitted annually in November to your bank’s manager from where your pension account is being operated 

EPS pensioner or guardian

Non-remarriage Certificate

  • To certify that the widow has not married
  • The form is to be submitted annually in November

Widow of EPS member

Form 11

  • To provide bank account and Aadhar card details to EPFO
  • After the UAN has been activated, you should provide a cheque of your active bank account. The cheque should contain your name, IFSC code of the bank branch and your bank account number

EPS member

Checking the balance in the EPS account

A part of your employer’s contribution is invested in the Employee Pension Scheme and you get a pension from the accumulated corpus. If during your active working life, you want to check the accumulated corpus till date, you can do so through your EPF passbook. The last column in the passbook shows the pension contribution done by your employer. You can download the passbook in soft copy through the link https://passbook.epfindia.gov.in/MemberPassBook/Login. To download, you have to enter your UAN number and password. 

Top #4 Things to remember about EPS contributions:

Here are some important points about EPS contributions which you should keep in mind –

  1. The contribution should be made by the employer within 15 days from the end of a month
  2. The administrative costs associated with EPS contributions would be borne by your employer
  3. If you are unemployed for a continuous period of two months and you have completed at least 6 months’ service, you can withdraw the entire EPS corpus even if you have not completed 10 years of service
  4. The contribution would be calculated on the basic salary plus dearness allowance 

Why should you opt for EPS?

Given other retirement oriented investment avenues available in the market, you might feel why choose EPS. Well, for starters, you have no choice in the matter. Your employer has to contribute part of your salary towards an EPS scheme if you are a salaried employee. So, if you are employed, you would have to opt for the EPS scheme. Other advantages of EPS are as follows –

  • Besides securing a pension for you, the EPS scheme also ensures that your spouse and children receive a pension in case of your death
  • The promise of lifelong pension gives you financial security in your old age when you have limited sources of income
  • The employer’s contribution are completely tax free for you. Your EPS corpus is, therefore, created without you having to part with your salary or pay taxes on your investments
  • Your pensions are created even when you do not invest yourself. Under any other retirement investment scheme you have to invest your money to create a pension. But, under the EPS scheme, your employer and the Government contribute to create a corpus for pension payments in your old age. So, opting for EPS is, in essence, free for you

Given these benefits, the Employee Pension Scheme is an ideal pension scheme for employed individuals.

The Employee Pension Scheme ensures that if you are a salaried employee you would receive pensions after you retire. The scheme promises lifelong pension and also provides your family with the necessary financial security in case of your death. So, if you are salaried, understand the concept of the Employee Pension Scheme and know when and how much pension is promised by the scheme.

Frequently Asked Questions:

  1. What would be my EPS account number?

    The EPF account number also doubles up as your EPS account number as your EPF and EPS contributions are identified by a single account number.

  2. What should I do when I change jobs?

    When you change jobs, you should transfer your EPS account to another employer so that the employer can continue depositing the contribution into the Employee Pension Scheme. To transfer your EPS account you can log into your EPF account online and apply for EPF transfer due to job change. When the EPF account is transferred, the EPS account would also be transferred automatically. The transfer would be done through a Composite Claim Form which you need to fill and submit.

  3. If the EPS member is survived by a wife and a dependent child, can both claim a pension?

    Yes, in case of death of the EPS member, both the widow and the child can claim a pension. The widow would get the widow pension and the child would get the child pension which would be 25% of the widow pension.

  4. Can I change my nominee under the EPS scheme?

    Yes, you can change the nominee whenever you want.

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