EPS Pension Scheme (EPS) 1995

EPS Pension Scheme 1995: A Pillar of Retirement Security in India

The Employees’ Pension Scheme, 1995 (EPS 1995), administered by the Employees’ Provident Fund Organisation (EPFO), stands as a crucial social security initiative in India. Launched on November 16, 1995, this scheme aims to provide financial stability to employees in the organized sector after their retirement. It’s an integral part of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

How EPS 1995 Works

The EPS 1995 is funded through contributions made by both the employer and the Central Government.

Here’s a breakdown:

• Employee Contribution: Employees do not directly contribute to the EPS. Their entire contribution (12% of basic salary plus dearness allowance) goes to their Employees’ Provident Fund (EPF) account.
• Employer Contribution: Out of the employer’s total contribution of 12% (matching the employee’s share), 8.33% is directed towards the EPS. The remaining 3.67% goes to the employee’s EPF account.
• Central Government Contribution: The Central Government also contributes 1.16% of the employee’s pay to the Employees’ Pension Fund. However, this contribution is capped at the amount payable on a maximum pay of ₹15,000 per month.

Eligibility for EPS 1995 Pension

To be eligible for pension benefits under the EPS 1995, an employee must meet the following criteria:

• EPFO Membership: The individual must be a member of the EPFO.
• Minimum Service Period: A minimum of 10 years of service is required to be eligible for a regular pension.
• Retirement Age: The normal retirement age for availing pension is 58 years. However, there are provisions for early pension (from age 50 with a reduced pension) and deferred pension (up to age 60 with an enhanced rate).
• Pensionable Salary: The pension amount is calculated based on the average monthly pay during the 60 months preceding retirement or exit from service. For contribution purposes, the maximum pensionable salary was initially capped at ₹6,500 per month, later revised to ₹15,000 per month.

Benefits of EPS 1995

The EPS 1995 offers a range of pension benefits to its members and their families:

• Superannuation Pension: A monthly pension is provided to members upon retirement at the age of 58, provided they have completed at least 10 years of service.
• Early Pension: Members can opt for a reduced pension from the age of 50 if they have completed the minimum service period. The pension amount is reduced by 4% for each year the member is below 58 years of age.
• Disability Pension: A monthly pension is granted to members who become permanently and totally disabled during their service, regardless of the length of their service. The employer needs to have contributed to the EPS account for at least one month for the employee to be eligible.
• Widow/Widower Pension: Upon the death of a member or pensioner, the surviving spouse is eligible for a monthly pension, which continues until their death or remarriage. If there is more than one widow, the eldest is typically entitled to the pension.
• Children Pension: In addition to the widow/widower pension, surviving children are eligible for a pension until they reach the age of 25. The amount is typically 25% of the widow’s pension, and benefits are usually limited to a maximum of two children at a time.
• Orphan Pension: If a member passes away leaving behind orphaned children (no surviving parents), they are eligible for a monthly pension, usually at a higher rate than the child pension.
• Pension to Dependent Parents/Nominee: In the absence of a spouse or children, pension benefits may be extended to dependent parents or a nominated individual.
• Withdrawal Benefit: If a member leaves service before completing 10 years, they can withdraw their share of the EPS contribution as a lump sum.

Calculation of Pension

The formula for calculating the monthly pension under EPS 1995 is:

Monthly Pension = (Pensionable Salary x Pensionable Service) / 70

Where:

• Pensionable Salary: This is the average of the basic salary plus dearness allowance drawn during the last 60 months of service, subject to the prevailing wage ceiling (currently ₹15,000).
• Pensionable Service: This is the total number of years of service rendered by the employee, rounded to the nearest whole year.¹⁹ A service period of six months or more is considered a full year.

Example: If an employee has a pensionable salary of ₹15,000 and a pensionable service of 30 years, their monthly pension would be (15,000 x 30) / 70 = ₹6,428.57.

Recent Developments and Challenges

The EPS 1995 has faced several discussions and legal challenges, particularly regarding the cap on pensionable salary. Recent Supreme Court judgments have addressed the issue of higher pensions based on actual salaries exceeding the statutory limit. This has led to new guidelines and options for eligible members to contribute and receive pensions on their actual wages.

Significance of EPS 1995

Despite its limitations and ongoing debates, the EPS 1995 remains a vital social security net for millions of employees in India’s organized sector. It provides a guaranteed minimum pension, ensuring a basic level of income security during retirement and to the families of deceased members. The scheme plays a significant role in promoting social justice and the well-being of the working population in their post-employment years.

In conclusion, the EPS 1995 is a cornerstone of India’s retirement security framework. While it continues to evolve in response to changing economic realities and legal interpretations, its fundamental objective of providing pension benefits to eligible employees remains crucial for ensuring a dignified life after retirement.

Few features of these schemes are-

• Employees who are members of EPF will automatically become the members of EPS.
• Along with your employer contribution of 8.33% of your salary, Central Govt. also contributes 1.16% of employees’ monthly salary. Here the meaning of salary means Basic+DA. The rulebook still sticks to the old salary limit of Rs.6, 500 limits for an employer and central government contribution. However, in my view after the new rules, the limit should be raised to Rs.15, 000.
• You will not get any interest on your EPS contribution. 
• For calculation purposes, if your service is more than or equal to 6 months, then it will be rounded to next year. If it is less than 6 months, then such fraction of service period is not considered for calculation. For example, suppose you worked for 21 yrs and 7 months. In this case, your service is considered as 22 years. However, if your service is 21 yrs and 2 months, then service will be considered as 21 yrs only.
• Pensioner receives a pension for life long and upon his death will go to spouse and two children below 25 years of age
• Employees are eligible for EPS only if they complete 10 Yrs of service or attain the age of 58 or 50 Yrs of age.
• You will not be eligible to receive more than one pension from EPS.

What is an eligible service for EPS?

As I said above, for calculation purpose, if your service is more than or equal to 6 months, then it will be rounded to next year. If it is less than 6 months, then such fraction of service period is not considered for calculation. For example, suppose you worked for 21 yrs and 7 months. In this case, your service is considered as 22 years. However, if your service is 21 yrs and 2 months, then service will be considered as 21 yrs only.

What is pensionable service for EPS?

The pensionable service is determined by the number of years your employer contributed on behalf of you. If your employer failed to deposit the amount then such months are not considered for calculation of service. Also, in case if an employee completed 58 yrs of age and completed 20 yrs of service or more, his pensionable service will be increased by 2 years for calculation purpose.

What is a pensionable salary for EPS?

It is the last 12 months average salary during contribution period preceding the date of exit from the membership of EPS. In case employee did not receive full payment during that last 12 months, the average of last 12 months full pay drawn by him during the period for which contribution to the EPS was recovered, will be considered for EPS calculation.

In case of such last 12 months, employee hasn’t contributed to EPS, including cases like where the employee has drawn a salary as part of a month, the total salary during the 12 month span will be divided by the actual number of days for which salary has been drawn. The amount so derived will be multiplied by 30 to arrive at an average monthly salary.

When employees get the pension?

a) Superannuation-To avail such pension, you must complete 10 yrs of service and your age must be 58 yrs or above. An employee can continue his job while receiving his monthly pension. However, he cannot be a member of EPS and hence no more fresh contribution to EPS.

b) Early Pension-To avail such pension, you must complete 10 years of service and age between 50 yrs to 58 yrs. To avail such early pension, an employee must not be working.

c) Death of an employee-Employee is eligible for EPS if death occurs as below.

• If death occurs during the service-If at least one-month contribution is done to EPS then his nominee will be eligible to receive the EPS.
• If death occurs while not in service-If death occurs after the service but before attaining the age of 58 years.

In both the cases also employee family eligible for a pension. In case of dead employee having a family, a pension is payable to the spouse and two children below 25 years of age. When a child reaches 25 years of age, the third child below 25 yrs of age will be given a pension and so on.

If the child is disabled, he may get a pension until his death. Only 2 children will receive a pension at a time. In case of an employee not having a family, the pension is payable to single nominated person. If not nominated and having a dependent parent, the pension is payable first to Father and then on father’s death to Mother.

d)  Permanently and totally disabled-If an employee is unfit to do his job due to accidental permanent and total disability during a job, then also he is eligible for the pension.

How to calculate the Employee Pension Scheme pension?

There are two methods based on the service you joined. One is for those who joined before 15th November 1995 and another for those who joined after this date.

1) Employees who joined before 15th November 1995-

The pension is calculated separately for Past Service & Pensionable Service

a) Procedure for Calculation of Past Service Pension

• Find out the total past service, i. e. subtract the Date of Joining from 15.11.1995 duly rounding the service in years.
• Find out the salary as of 15.11.1995 as to whether it is up to Rs.2500 or more than Rs.2500.
• Accordingly locate the past service benefit from the table given below.

• Find out the period that had elapsed between 16.11.1995 and the date of exit and based on this period locate the corresponding Table ‘B’ Factor. Date of Exit is Date of attaining 58 years for superannuation/early pension, Date of Death for widow pension and Date of Disablement for Disablement pension.
• Multiply the Past Service Benefit and the Table B factor, which gives the Past.

b) Procedure for calculation of Pensionable Service Pension–

• Find out the Category of the member as to whether he belongs to X, Y or Z Category.
• X – Date of commencement of pension is between 16.11.1995 and 15.11.2000 Y – Date of commencement of pension is between 16.11.2000 and 15.11.2005 Z – Date of commencement of pension on or after 16.11.2005.
• Find out the Pensionable Service and Pensionable Salary of the member and substitute the same in the formula given as below.

(Average Salary X Service)/70

• If the formula pension calculated is less than 335/438/635 respectively, for X, Y, Z categories, then only that minimum pension is to be given.

c) Procedure for the calculation of Total Pension-Add the Past Service Pension and the Formula Pension.

• Add the Past Service Pension and the Formula Pension.
• If the total pension is less than 500/600/800 respectively, for X,Y,Z categories, then that minimum pension shall be the total pension.
• But this total pension is for an eligible service of 24 years or more, and if the eligible service is less than 24 years, then this total pension has to be proportionately reduced subject to a minimum of 265/325/450 depending on X,Y,Z categories (only when the minimum pension is given).
• If the total pension itself is more than the minimum, then the proportionate reduction need not be made even if the eligible service is less than 24 years.

2) Employees who joined after 15th November 1995–

You can directly calculate by inserting the values in the formula as given below.

(Average Salary X Service)/70

How to apply for the pension?

Once you complete the service of 10 years, then you get the scheme certificate. This scheme certificate can be used to claim your pension either from 58/50 Yrs.

The employee has to include all his past services to arrive at such 10 yrs of service and apply for pension once he attains the age of 58/50. He needs to fill the Form 10D and get attested by that bank manager with photo and other required documents. Submit the form to concerned EPFO.

Whether one can withdraw the EPS amount before 10 years also?

Yes, you can withdraw the contributed EPS amount along with your EPF balance. But the condition is you must not have completed 10 Yrs of service. When you withdraw EPF, then you receive EMPLOYEE+EMPLOYER EPF contribution+Interest earned on this EPF. Along with that, some % of EPS contribution also be paid. This % is determined by Table D of EPS, which is given below. Hence, whatever may be your contribution to EPS, you will get only some % of this based on the number of services and salary.

This is calculated as below.

Wages as on the date of exit X Corresponding Table ‘D’ factor. Here wages means Basic Salary+DA for EPS at the time of withdrawal. Therefore, suppose your salary is Rs.15,000 at the time of withdrawing and you completed 7 years, then you receive the EPS of Rs.1,06,950 (Rs.15,000*7.13). This is the amount you get, irrespective of your actual contribution to EPS. You have to submit the Form 10C along with other forms of EPF withdrawal to your HR.

Note-I found that still EPFO not updated the manual as per the new changes. Hence, I am unable to find the corresponding values for calculation. Whenever it is updated then I do changes here also.