Most of the salaried people think that their EPFO pension will not be much and that it will be very small when they retire. This fear, most of the time, is due to the minimum pension of ₹1,000 fixed under the Employees’ Pension Scheme (EPS-95) which is frequently talked about. However, the actual pension amount is determined by a thorough calculation, and in case of many members, the last pension can be much more than the figure expected.
Understanding The EPFO Pension Scheme (EPS-95)
The Employees’ Pension Scheme, 1995 takes care that the private-sector workers after retiring get a monthly pension. The whole of the employer’s contribution to EPF is not channelized into EPS but only a part of it, thereby making a pension fund that pays a monthly amount for the whole life of an employee once he/she has reached the retirement age.
How EPFO Pension Is Calculated
Fixed formula is used for the calculation of EPFO pension:
- Monthly Pension = (Pensionable Salary × Pensionable Service) ÷ 70
The pensionable salary is the mean of the last 60 months’ basic salary and dearness allowance, subject to the wage ceiling. The pensionable service is the total number of years the employee has contributed to the EPS. If an employee completes 6 months or more in a year, it is considered as one full year of service.
Why Many Pensions Are Higher Than Expected
Staff with long service periods take advantage of such a formula very much; a little bit or very little if at all, is he/she/they who would not get much the ceiling on the pensionable salary. On the other hand, just with the proper experience, it is all the way from 25 to 35 years, workers can exhaust a monthly pension running into several thousands of rupees. The mightily talked about ₹1,000 pension is just a minimum guarantee, not the maximum amount payable.
Calculation Of EPFO Pension: An Example
An employee, for instance, having 30 years of service and a pensionable salary near the wage limit, would receive a monthly pension of more than ₹6,000. This basic scenario illustrates that consistent employment and long service can, under EPS, notwithstanding the retiree’s income, dramatically improve the retirement income.
Minimum Pension Versus Actual Pension
To support the below-poverty-line workers or those with shorter service periods, the ₹1,000 minimum pension was introduced. If the calculated pension is lower than this amount, the government intervenes to raise it to the minimum level. In the case of the majority of long-term contributors, the final pension is far above the minimum guarantee.
Changes In Future May Raise Pension Even More
There are currently negotiations going on regarding the increase of the wage ceiling which is taken into consideration for pension calculations. If this change is made, it would be a significant boost to the pension amounts of retirees, especially the ones with high salaries and a record of uninterrupted employment over the years.
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