The EPS has some beneficial social security features built into it.
When you are part of the Employees’ Provident Fund (EPF) scheme, besides your provident fund corpus on retirement, you get a monthly pension for life from the Employees’ Pension Scheme (EPS). Here are some pointers to understand the EPS better.
PENSION CALCULATION
Your EPS account is primarily funded from your employer’s contribution to your retirement corpus. Most employers match their employees’ contribution to the EPF. So, every month, when 12 per cent of the Basic and Dearness Allowance (DA) components of your salary get salted away to the EPF account, your employer makes an equal contribution. While the deduction from your salary goes entirely to build the EPF corpus, a part of the employer’s contribution (8.33 per cent of the Basic and DA) goes towards your EPS account. For calculations under the EPS, the Basic and DA amount is restricted to Rs 6,500 a month. So, from the employer’s contribution, the maximum amount which goes to your EPS account each month is Rs 541 (8.33 per cent of Rs 6,500). The Union Government also chips in with a contribution of 1.16 per cent of your Basic and DA.
Unlike the EPF, your EPS balance does not earn any interest. The pension you get is determined by the number of years of pensionable service (effectively the number of years of contribution) and your pensionable salary (average Basic and DA in the last 12 months of service). Here too, there is a cap of Rs 6,500 on the pensionable salary. The monthly pension is computed as (pensionable salary multiplied by pensionable service)/70.
You are eligible for pension only if you have served at least 10 years. The pension usually starts after the age of 58. At this point, if you have served at least 20 years, your pensionable service is increased by two years. But pensionable service cannot exceed 35 years. So, the maximum pension you can get is Rs 3,250 a month - (35 multiplied by 6,500)/70.Rather than after 58, you can opt to draw pension once you turn 50. However, to be able to do this, you should not be in service. Also, an early start will mean a lower amount – the pension will be reduced by four per cent for every year your age falls short of 58.
