Getting a lifelong regular income after retirement is a crucial goal for many salaried individuals. The Employees’ Pension Scheme, 1995 (EPS-95), offers an avenue for private sector employees to receive a pension during their retirement years. Typically, the EPS-95 scheme pays out the pension after reaching the age of 58 or upon retirement. However, what if circumstances compel individuals to retire early? Can they still avail of a pension under EPS-95? Let’s delve into the possibilities.
EPS-95 allows members to draw an early pension before the age of 58. This is contingent upon satisfying specific conditions. The first condition requires completing a minimum eligible service of 10 years. Eligible service refers to the period of actual service where contributions to the fund have been received or are receivable. In the case of those who were previously members of the Employees’ Family Pension Fund, their period of service until November 15, 1995, is also taken into account.
The second condition is that the member must either retire or cease employment before reaching 58 years of age. Sowmya Kumar, a Partner at INDUSLAW, stipulates that early pension can be availed by EPS members once they turn 50. However, it’s important to note that opting for early retirement will result in a reduced pension.
To calculate the reduced pension, explains that it is the monthly member’s pension minus 4% per year, depending on the age of the member choosing early retirement. For example, if a member opts for an early pension at age 57, their monthly pension will be reduced by 4%. Thus, instead of receiving Rs 10,000 at the age of 58, they will receive approximately Rs 9,600 from the age of 57.
The reduction in pension becomes more significant with earlier retirement. For instance, if a member chooses to retire at age 51, which is 7 years before the eligible age of 58, the pension will be reduced by 28%. In this scenario, the pension will amount to Rs 7,200 instead of Rs 10,000 at age 58.
Before deciding whether to opt for early retirement and an EPS-95 pension, it’s crucial to consider various factors. Ramchandani advises individuals to wait until age 58 to receive the full eligible pension, as this is more beneficial. The quantum of the monthly pension is higher when received after the age of 58. Therefore, unless there are compelling circumstances, such as financial necessity or alternative career plans, it is generally advisable to avoid early retirement.
Read more at: Employees Pension Scheme (EPS) 1995, ELIGIBILITY & ITS BENEFITS
For those with lower pensions under EPS-95, especially those who have not chosen the higher pension option, early retirement may not have a significant impact. Individual financial circumstances play a key role in such cases. However, for those eligible for a higher pension, Ramchandani cautions against opting for an early pension. Since the reduced amount received from early retirement is not as beneficial as the full pension received after age 58, it is wise to wait as long as possible.
Yet, there are situations where opting for an early pension may be appropriate. Individuals who have planned an alternative career path or have investments maturing at a later age may consider early retirement with an EPS-95 pension. This choice provides immediate income support, albeit at a reduced rate. Additionally, those who retire due to factors like ill-health or reduced life expectancy may also benefit from an early pension.
In conclusion, EPS-95 offers a provision for individuals to avail of a pension even if they retire early. Yet, it is essential to weigh the benefits and considerations before making a decision. Factors such as the amount of pension reduction, financial circumstances, and long-term retirement planning should be taken into account. Whatever the choice, early retirement and an EPS-95 pension can provide individuals with a stable income source during their post-employment years, ensuring financial security and peace of mind.
How to check pension status on EPFO portal
Step 1: Go to the EPFO website.
Step 2: Click on the pensioner’s portal option available under online services.
Step 3: You will be redirected to the pensioners portal.
Click to know your pension status, listed on the left side of the page.
Step 4: Select the office and enter the office ID, and PPO number.
PPO, the Pension Payment Order, is a 12-digit number assigned to every pensioner as a reference number for transactions and communications related to the Employee Pension Scheme or EPS.
Step 5: Click to get status of your pension.
formula to calculate EPS pension
As per the EPF law, the formula to calculate EPS pension is as follows:
Pensionable salary X Pensionable service period divided by 70
Pensionable Salary: The pensionable salary refers to average of basic salary of an individual for 5 years from the date of retirement.
Pensionable service period: The pensionable service refers to the working period of an employee while he/she was making contributions to the EPF and EPS account.
The formula to calculate the EPS pension was revised by the EPFO in 2014. Prior to amendment , the average basic salary of last one year of an individual was taken as pensionable salary.
Members of the EPS should keep in mind that if you have joined the scheme prior to 2014, a pro-rata calculation will be used to determine your monthly pension. An example will help to clarify the calculation.
Let’s say that you enrolled in the EPS scheme in January 2010 and quit working in February 2025. As a result, up until August 2014, you would have served for 4 years and 7 months. The rest of the service period spans from September 2014 till February 2025, or 10 years and 5 months. Additionally, let’s assume that the pensionable wage is Rs 6,500 up until August 2014 and Rs 15,000 starting on September 1, 2014.
The calculation of pension will be made for the period between January 2010 and August 2014 as follows:
(Rs 6,500 X 5 years)/70 = Rs 464. 28
The pension for the period between September 2014 and February 2025 will be calculated as follows:
(Rs 15,000 X 10 years)/70 = Rs 2,142.85
Thus, the total pension payable to you will be Rs 2,607.13 (Rs 464.28 + 2142.85).
In 2014, the EPFO hiked the wage ceiling limit from Rs 6,500 to Rs 15,000. Hence, all the pension calculation and EPS contributions Rs 15,000 will be considered.
What if you are opting for higher EPS pension
It may happen that you are eligible for higher EPS pension. The EPFO has released the circular dated June 1, 2023 clarifying that those who have retired prior to September 1, 2014, then old formula (prior to amendment) will be used to calculate the pension.
For this who have retired on or after September 1, 2014, then new formular will be used to calculate the pension.
Calculation of early pension
The EPS permits early retirement at age 50. Hence, an individual has an option to opt for early pension from the age of 50 years. However, in these circumstances, the pension amount will be decreased by 4% for each year that the pensioner is under the age of 58.
What if a person has not rendered 10 years of contributory service?
It may happen that an individual service period is less than 10 years on the date of leaving the EPS scheme. In such a case, he or she is eligible for a lump sum withdrawal.
Minimum and maximum amount of pension
The minimum pension amount under EPS is Rs 1,000 per month, and the highest pension amount that you are eligible to receive is Rs 7,500 per month, on the condition that no pension contribution is paid on amounts beyond the statutory ceiling.
When is an employee eligible to receive pension?
If a person joins the Employees’ Pension Scheme, 1995 on or after November 16, 1995, they will be eligible for the pension benefit. From September 2014, an individual joining the EPF scheme, is eligible to join the EPS if their basic salary does not exceed Rs 15,000 per month.
Further, in order to qualify for a EPS monthly pension, an employee must have a minimum of 10 years of contributed service. This means that the an individual must actively contribute to the EPS account for a minimum of ten years. The total number of years of employment can be with a single employer or a variety of employers.
How much contribution is made to the EPS account?
According to the scheme rules, a portion of the employer’s provident fund contribution is diverted to the pension plan. For this reason, the maximum amount of wages on which the contribution is made currently, Rs. 15,000 per month.
The EPS contribution will be made as follows beginning September 1, 2014 is 8.33% of Rs 15,00= Rs 1,250.
Read more at: Employees’ Pension Scheme (EPS) and its Benefits