written by | April 25, 2022

What is EPS - Employee Pension Scheme?

The Employee Pension Scheme (EPS) is a pension scheme introduced in India in 1995. This was a move implemented to provide employees with additional retirement benefits and regular income during the last few years before they retire. EPS offers additional retirement benefits compared to what PF can offer.

All those eligible for the Employees Provident Fund (EPF) scheme will be eligible for EPS. The main difference between EPF and EPS is that EPF is a provident fund where the employer contributes 12% of the salary every month. EPS is a defined benefit plan where an employee's employer has to contribute towards an employee's pension amount until the age of 58 years or finish paying these contributions after death.

Did you know?

The Employees' Provident Fund Organisation is the body under the Government of India's Ministry of Labour and Employment responsible for regulating and managing provident funds in India. 

Employee Pension Scheme

The Employee Pension Scheme (EPS) is a scheme run by the central government of India, and it provides pensions to the employees working in the private sector. This scheme operates under the Ministry of Labour and Employment, Government of India.

The government changed the eligibility criteria for EPS recently. According to this latest change in the eligibility criteria, all the employees whose salary is below ₹15,000 are mandatory to have an EPS account. You can calculate the amount of the epf scheme as 12% of the employee's salary and accumulate it in the EPF account of the employee.

The Employee Pension Scheme (EPS) is a scheme that provides pensions to all those employees working in the private sector. The minimum pension amount offered by this scheme is ₹1000, and this amount can be increased up to ₹1250 per month if there is an increase in basic wages, dearness allowance or dearness pay from time to time.

Also Read: Everything You Need to Know about EPF Challan

What is EPS in PF?

The Employee Pension Scheme (EPS) is a pension scheme for the employees of organisations that employ 20 or more people. Employees who are EPFO members and contribute to the EPS account are eligible for a pension under this pension scheme. When an employee quits, the organisation transfers the pension to the nominee. Employees contribute nothing to the EPS account. The employer makes a 12% contribution to EPF and 3.67% to EPS.

What is a Pensionable Salary?

We can define pensionable salary as the basic DA Retaining allowance, if any, but shall not exceed ₹6,500 per month from 01-01-1997. After that, it was fixed at ₹15000 per month subject to revision in future by Govt. of India.

The Benefits Under EPS

The major benefits under EPS are as follows:

1. Minimum Pension

The minimum pension payable under EPS cannot be less than ₹1000 per month after April 1 2016.

2. Pension on Discontinuation

If an employee leaves the organisation before ten years, he gets a lump sum benefit =80% of his pension accumulation or withdrawal benefit, whichever is less. 

If the individual joined after November 16, 1995, the following formula used to calculate the pension is: 

(Service Period x Pensionable Salary)/70 = EPS

We can centre the pensionable salary calculation on an individual's average income over the last five years.

How to Calculate Pensionable Salary?

Suppose your salary is ₹25,000 and you have been working in a company since January 1 2014. Now you want to retire as of January 1, 2019. In this case, you will calculate your EPS will as follows:

EPS = (5 Years x ₹25,000)/70

EPS = ₹17,857

The amount of ₹17,857 will be paid to you by the government every month after retirement.

Applicability of The Employee Pension Scheme

The Employee Pension Scheme is applicable for all Indian employees getting a salary of less than ₹15,000 per month. All employees earning more than ₹15,000 per month can also open an EPF account, but it should be their personal choice. However, there are certain exemptions given to the employees about their contributions. For example, some states like Punjab and Haryana have exempted the contractual workers from contributing towards EPS. On the other hand, only those permanent workers in Kerala are exempted from contributing to EPS who have more than 20 years of service left in an organisation.

Eligibility to Avail EPS Benefits

You are eligible to avail of the benefits under the Employees' Pension Scheme (EPS). You can withdraw your pension after attaining the age of 58 years.

Suppose you have completed ten years or more service with an employer and the employee has attained the age of 50 years. They may be allowed to withdraw 50% of the accumulated pension wealth (excluding interest) as a lump sum payment.

You can use the balance amount to purchase an annuity plan which will provide a monthly pension till their lifetime. The annuity plan will also provide a monthly pension to their spouse for their lifetime. On the death of both the member and spouse, the nominee shall get the total purchase price. 

Also, if you wish to defer your pension for two years (up to 60 years of age), you will get a pension at an additional rate of 4% for each year.

The Process to Calculate Monthly Pension

Pension calculation for employees who have joined before November 16, 1995.

  • The first step is to calculate the Final Average Salary (FAS) for the employee by adding all the pensionable salary of an employee in the last 60 months or five years from the date of retirement and then dividing it by 60.
  • The second step is to calculate the Basic Pension. The formula is (40% x FAS) (4% x FAS x number of years of service).
  • The third step is to calculate Gratuity, a lump sum paid by an employer to an employee based on the number of years they have worked in an organisation. The formula is 20 days of annual salary for each completed year if the service period is less than six months and one month's pay if it's more.
  • The fourth step is to calculate Commuted Pension, which equals 25% of the basic pension.
  • The fifth step is to calculate the monthly pension, which equals Commuted Pension, Basic Pension and Gratuity.

Pension Contribution to EPF

  • The pension contribution in the EPF chequebook is the sum deposited by the employer in the employee's EPS account each month. Every month, it comes to around ₹1250.
  • The annual interest rate on this amount deposited in an EPS account is 8.75 per cent.
  • The total contribution made by both the employers and employees is considered when calculating interest.
  • The epf scheme has been increased from 8.33% to 10% for all employees getting less than ₹15,000 as their monthly income.

Also Read: PF Calculator - Calculate EPF Online

Features of EPS

The EPS scheme is a part of the Employees Provident Fund (EPF) act. If you are part of the EPF Act, you are automatically a member of the EPS act. The government introduced this provision to ensure that people could get some pension after retirement.

Here are some features of this scheme that you must know:

1. The least amount of pension that a person can get is ₹1000

2. In case the employee dies, the spouse and kids of the employee are eligible to get the pension

3. Anybody who earns less than ₹15,000 per month is eligible to be a part of this scheme

4. Only government employees are eligible to become a member of the EPS.

5. The minimum pension amount that an individual can get is ₹1000 per month.

6. The EPS scheme is only for government employees who have retired from service. This scheme offers financial security after retirement and also safeguards their interests post-retirement.

Conclusion

In a nutshell, the Employee Pension Scheme (EPS) is a pension scheme that encourages employees to save money for retirement. The regular contribution of money from the employee pours into an EPS account, and EPF is also part of the EPS. Because both EPS and Employee Pension Scheme (EPS) are run by EPFO, the government body for employment, there are no restrictions on how you spend the money once it's accumulated in your account.

The EPS is a group pension scheme for employees in the organised sector. This scheme helps you build a corpus for your future via deductions from your basic salary. Employees eligible for this scheme are also eligible for funds from the Employees Provident Fund (EPF) scheme.
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FAQs

Q: What is an Employee Pension Scheme?

Ans:

EPS is a pension scheme for government employees in India. If you are looking for an EPS calculator, then EPS (Employees Pension Scheme) Calculator is the best app. This app includes every information about EPS and will make your life easier.

Q: What is the process to check the EPS balance?

Ans:

To check the EPS balance procedure, follow these steps:

Step 1. Under the 'Our Services' menu, select 'For Employees.'

Step 2. On the following page, click 'Member Passbook.'

Step 3. After that, enter your User Name (UAN), password, and captcha information.

Step 4. The page displays various Member IDs.

Q: What are the benefits of joining the EPS?

Ans:

There are many benefits of joining the EPS scheme. These benefits are:

1) Offers protection against inflation

2) Provides financial security after retirement and safeguards your interest post-retirement

3) Pensions to survivors in case of death of a pensioner.

Q: When was the EPS scheme introduced?

Ans:

The government introduced the EPS scheme in 1995, and it has been a boon for numerous employees who have attained superannuation and now live on a pension. The scheme is quite popular among government employees, as the government takes care of the investment and gives them a handsome pension.

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