What is EPF Pension
The EPF pension or EPS is a pension scheme for the employees of the organized sector who otherwise don’t have any pension scheme.
The Employee penison scheme runs along the EPF scheme. EPF is also retirement saving scheme which give you lump sum amount after the retirement.
This pension scheme gives a guaranteed monthly pension after the retirement. The government department Employee provident fund organisation manages the pension account of all the employee. The EPF pension tries to give the social security to its employees and their families. The family of employee also get the pension after the demise of the employee.
The pension amount of EPF pension is not linked to the contribution, rather the service period and last drawn salary decides the monthly pension. In technical term it is a guaranteed benefit pension plan.
In India, every establishment which employs 20 or more person becomes the part of Employees provident fund.The government also contributes 1.16% in the pension account. The maximum contribution by the government is Rs 180/month.
Contribution into EPF or EPS is mandatory for those workers whose basic pay plus DA is less than or equal to Rs 15000. Those who earns more than this can opt out of EPF and EPS. However, once a person becomes Employees’ Provident Fund organization member will remain member till the employment.
Benefits Of EPF Pension
Unlike any other investment plan the EPF pension plan does not focus on returns. Rather, It is designed for social security. The social security of employee and its family is the utmost important for this plan. Hence, the wife of a deceased employee gets pension throughout her life, what if her husband has been in the service for a year.
- It is a guaranteed pension plan. You know the pension amount in advance. The pension does not change after the retirement.
- The pension plan is backed by the government hence there is no chance of default. You can rely upon it.
- The contribution of this pension plan is not taken from you, rather, the employer pays the contribution amount in your pension account.
- The government of India also contributes in this pension account. The government contribution is 1.16% of your basic pay.
- After the demise of an employee, the wife also gets reduced pension. Even two children can also get the pension till the age of 25. It is called as family pension. There is no minimum limit of service for the family pension. If the member is not married the nominee gets the pension till the death.
- You can get the early pension after the age of 50. However, the pension amount would reduce.
- On the death of a pensioner. the pension is automatically payable to the spouse (widow / widower)
- On death or re-marriage of widow / widower, children will be given enhanced pension treating such children as Orphan.
- A Child with the permanent disability gets the pension till the death.
- Pension can be drawn from anywhere in India.
Eligibility To Get the Pension
- You must be the member of Employee Provident Fund Scheme.
- You must have been in the service for at least 10 years.
- One can get the pension after the age of 58. Reduced pension can be withdrawn after the age of 50
- You can also defer your pension till the age of 60. If you opt for deferment, the pension would increase by 4% for every deferred year.
- The Pension is given to the family after the untimely death of employee.
- An employee can get a pension if s/he gets totally incapacitated.
The Eligibility Condition For Pension
|1) On Retirement
||The member can continue in service while receiving this pension
On attaining 58 Years of age, an EPF member cease to be a member of EPS automatically.
|2) Before Retirement
||The member should not be in service.|
|3) Death of the member||Death while in service or.
Death while not in service
|4) Permanent disability||Permanently and totally unfit for the employment which the member was doing at the time of such disablement|
Terms And Conditions of EPS
- You can’t get pension before the age of 50.
- Minimum 10 years service is required to get the pension.
- The government contribution can’t be more than 1.16% of 15,000. It means the government will not contribute more than Rs 174 in a pension account.
- You can’t have more than one EPF pension account.
- The commutation of EPF pension is not possible. Before 2008, there was a provision.
Contribution To Employee Pension Scheme
According to EPF rules, every employee contributes 12% of the basic pay + DA towards the EPF account. The employer also matches employee contribution (not mandatory above Rs 1800). Out of the employer’s contribution, 8.33% (Maximum Rs 1250) goes for the employee pension scheme. Remaining 3.66% (can be higher) is used for employee deposit linked insurance scheme and EPF.
|Scheme Name||Employee contribution||Employer contribution|
|Employee Provident Fund||12%||3.67%|
|Employee Pension Scheme||0||8.33%|
|Employees Deposit linked insurance||0||0.5%|
|EPF Administrative charges||0||0.85%|
|EDLIS Administrative charges||0||0.01%|
History of EPF Pension
The present EPF pension scheme, The Employee pension Scheme 1995 is applicable from 16/11/1995. Before this date, there used to be the family pension scheme. The contribution to family pension scheme was mere 3.34%. Because of this low contribution, the pension amount was also low.
In the family pension scheme, Member did not get any pension in his lifetime. Only after the death of the member, the spouse got the pension.
From 16/11/1995, the employee pension scheme came into effect. The contribution to this scheme increased to 8.33%. It gives better pension to the employee. In this scheme, the member gets the pension after the age of 58. If member dies, the spouse and children also get the pension.
Monthly Pension Calculation
Pension calculation 1
The amount of monthly pension is decided on the basis of a simple formula. This formula is for the service rendered after 16/11/1995.
(Average salary * Pensionable service)/70
- In this formula, the average salary is calculated from the last 12 month salary. The ‘salary’ is basic salary plus DA.
- While pensionable service is the years in service after 16/11/1995.
Pension calculation 2
The members, who were earlier part of the family pension scheme joined employee pension scheme from 16/11/1995. Because of this switch the pension calculation has become tricky. The calculation for their total service period can’t be uniform as earlier contribution was very low. Therefore the pension amount for both the service period is calculated separately.
To calculate the pension for the period before 16/11/1995. A table is used. You can read more about this calculation as well as use the calculator in my post on pension calculation.
Premature Pension Withdrawal
To get the regular pension minimum 10 years service is mandatory. If you can’t complete 10 years in service you can withdraw the pension benefit. This pension withdrawal benefit is not based on any interest, rather, a table is used to arrive at the amount. In this table, the last wage is multiplied by a factor taken from the table. This factor is fixed on the basis of the service period.
If Shyam earns basic pay of Rs 13000 at the time of leaving his 5 year old service, the withdrawal amount would be Rs 68,640 (13000×5.28). You can also use pension withdrawal calculator to reach the final amount.
|Years of service||Proportion of wages at exit|
Pension Scheme Certificate
Pension scheme certificate is given to the employee who does not complete minimum service of 10 years. Instead of the pension benefits, one can also opt for pension scheme certificate. Whenever a person again joins the service the pension scheme certificate is used to add up the previous service. Due to this scheme, the employee does not need to complete the 10 years service period again for getting the pension.
Reduced Pension Before 58
One can also get the pension before the age of 58. But the pension amount would be lesser than a regular pension. To get the reduced pension, you must fulfill these condition.
- You should not be in service and the date of leaving service may be at any date/age and for any reason.
- You should have attained the age of 50 years on the date opted for reduced pension
- You must have been in the service for 10 years.
- You should give the option to draw reduced pension in form 10D.
You can opt for reduced pension at any age between 50 -57. It is not necessary to claim immediately on leaving service.
The Pension is reduced by 4% for every year. The reducing balance is used to get the deducted amount. The below table gives you the factor to get the approximate amount of reduced pension. To know the reduced pension, you have to multiply the full pension with the given factor of respective age.
|Know Your Reduced Pension|
|Age||Factor To multiply|
Enhanced Pension After 58
Recently, the EPFO has also given option to get the increased pension. You can get higher monthly pension if defer it after the age of 58. The formula is similar to reduced pension. In the reduced pension formula, the pension decreases by 4% for every year. Similarly, you would get 4% more pension for every extra year. However, you can get only two such years as this benefit is not available after the age of 60.
EPF Pension Vs National Pension System
Along with employee pension scheme there is national penbsion system which promise to give you the retirement benefits. Most of the new government employees are now the member this national pension system. However, most of the private employees are still with the EPF pension. Let us compare both the pension systems.
Recommneded: EPF to NPS transfer Process
Forms Related To Employee Pension Scheme (EPS)
|Form 10D||Widow/Widower, children or nominee||
|Life/non-remarriage Certificate||Pensioner||The life certificate is given by the pension beneficiary including children every year in November.
Non-Remarriage certificate is given by widower every year. And Widow can give once at the beginning of pension.
The certificate can be submitted to the manager of pension disbursing banks.
The information in this post is collected from the EPF portal and other government sources. However, to be sure you can also visit the EPF website. For further reading you can also refer study material provided by the National Academy for training and research in social security.
FAQ on EPS
These FAQs are taken from the EPFO Chennai website. Since, it may be useful for many readers, I am republishing it. The below content is not written by me.
1) Who will be covered by the Pension Scheme?
Every member of the ceased Family Pension Scheme 1971 and anyone who joins any covered establishment on or after 16-11-95 is compulsory to join this scheme, provided his/her salary/wage is less than Rs. 15000/- per month at the date of appointment.
2) what is a covered establishment?
Covered establishment is an establishment belonging to the class of industries / other establishments, which have been listed in the schedule appended to the Employees’ Provident Fund and Miscellaneous Provisions Act 1952 and where 20 or more persons are employed.
3) An employee was a Family Pension Scheme member. He/She has left on 13-12-93 and he/she is 54 yrs. old. He/She has taken his withdrawal benefit. Can he/she join the new scheme now?
Yes, by refunding the withdrawal benefit together with interest. Thereafter, he/she will be entitled to receive pension from age 58, if he/she completes atleast 10 yrs. of contributory service by then.
4) If employee is a Family Pension Scheme Member and he/she has retired after 58 yrs. of age on 15-01-94. Can he/she join will get pension under the new scheme?
Yes, anyone who has retired by reaching age 58 between 01-04-93 and 15-11-95 may join the scheme by returning the withdrawal benefit along with interest. He will be paid pension with immediate effect, from date of exit provided he has rendered 10 yrs. of eligible service.
5) If employee is not a Family Pension Scheme member and he/she is 56 yrs. of age. Can he/she join Family Pension?
Yes, by diverting from his/her Provident Fund balance, Family Pension Scheme contribution from date of his/her joining or 01-03-71, whichever is later.
6) Whether the Family Pension Scheme member who has attained the age of 58 yrs. before 01-04-93 and has left employment after 01-04-93 will be admitted to the scheme as member of Family Pension Scheme, 1995?
Yes, he will be deemed to have retired after 01-04-93. On repayment of that withdrawal benefit if paid along with the interest, Pension will be paid from the same date, provided he has rendered 10 yrs. of eligible service.
7) In case Family Pension member has attained the age of 58 yrs. between 01-04-93 and 16-11-95 then in that case whether arrears of monthly Member Pension become payable for the period earlier than 16-11-95 i.e. from the date of his/her attaining the age of 58 yrs. which is prior to 16-11-95?
No, he/she will be deemed to have retired from 16-11-95 and pension paid accordingly.
8) Is employee the only beneficiary of Fund?
Benefit will be paid to him/her and in his/her absence to his/her family.
9) What is meant by Family?
Family means employees’ spouse and children below 25 yrs. of age.
10) Suppose employee does not have a Family and he/she dies before receiving benefit. Does his/her pension get lost?
No, if he/she does not have a family, benefits will be paid to his/her nominee, who will receive the benefit in his/her absence.
11) Suppose member has not nominated anyone?
The amount will be paid to dependant father or dependant mother as the case may be.
12) Can member change his/her nomination?
He/She can change his/her nomination whenever he/she decide within the framework of rules for such nomination. In other words if he/she has a family, nomination should be in favour of a member(s) of the family. If he/she has no family he/she can nominate anyone he/she wishes
13) How many years service is required to be eligible to receive pension?
Minimum 10 years eligible service will entitle for pension.
14) Employee is a member of Employees’ Pension Scheme. He/She has left employment at 48 yrs. of age and 8 yrs. of service. When shall he/she receive his/her pension?
He/She will not receive any pension.
15) What is past service pension?
This pension is for the period under membership of the Employees’ Family Pension Scheme, 1971, i.e upto 15.11.1995.
16) If employee is a member of Employees’ Family Pension Scheme and he/she has left employment at 48 years of age with 12 years of service to his/her credit. When will he/she be eligible to receive pension?
He/She will receive pension on reaching age of 58 years.
17) Can member not get pension earlier?
Yes, he/she may receive pension on reaching age of 50 years. In that case pension payable from age of 50 years will be reduced by 3% for each year falling short of 58.
18) Member’s pension has been worked out based on salary at age 48 and service upto 48. Will this pension remain same until he/she reach age 58?
No, the pension will be increased on subsequent actuarial valuation along with vested percentage.
20) Past service pension is Rs. 170/- now. If employee retires after 10 years what will be his/her past service pension?
His/her past service pension will be accumulated as per factor Table B. As such pension payable will be Rs.170 * 2.720 = 462.40.
20) Why are there two pension formulas?
For the past service upto 15.11.95, there is a table to calculate the benefits. For actual service from 16.11.95 onwards there is a formula which is Pension formula is 1/70 * Pensionable Salary * Pensionable Service. From those rendering 20 years service, pensionable service is enhanced by two years. This is inline with concept that maximum pension should be paid to the longest service employee.
21) If employee has reached age of 50 years, what does he/she has to do to receive monthly pension?
As and when he / she is quitting the employment, they can apply for reduced monthly pension.
22) Employee is a member of ESIC. On his disablement he will receive benefit from there as well. Will his benefit under Employees’ Pension Scheme be affected by this?
No, his benefit under the scheme is due to his contribution under The Employees’ Pension Scheme ’95. Accordingly the disablement pension will not be affected notwithstanding his availing benefit elsewhere.
23) Employee has left his employment on reaching age 45. He has deferred his pension till 58. He has become permanently disabled after 3 years from leaving service. Does he receive disablement pension? No, he will receive disablement pension from date of disablement only if such disablement occurs while in service.
24) In case of employee’s death in service, what benefit will be available to his family?
Widow will receive pension :-
a) The pension as he would have received had he retired on the day of death or
b) Such widow pension would have been payable under erstwhile Family Pension Scheme or
c) Rs. 450/- per month whichever is highest.
In addition 25% of widow pension with minimum of Rs. 150/- for each child (not exceeding two children at a time) will be paid until the youngest child reaches 25 years of age.
25) Employee has left covered establishment after 12 years in service and he has not taken withdrawal benefit. He has not reached age 58. In case he dies during deferment of pension what benefit will widow receive?
Widow will receive pension :-
a) Pension that he would have received had he retired on the day of death, or
b) Family pension payable under erstwhile Family Pension Scheme, or
c) Rs. 450/- per month whichever is the highest.
26) Employee has left service with 8 years of service. He has not taken refund of contribution. He has not reached age 58. If he dies during deferment what benefit will his widow receive?
She will receive widow pension as prescribed and not the retirement pension.
27) Employee has made an Option-1 i.e. to receive 90% of original monthly pension. What capital return on his death?
100 times of original pension.
28) Employee has opted for Option-1 where his wife is nominee. Does his wife get widow pension after his death even though she will receive capital sum?
Yes, she will get 50% of pension last drawn by him or Rs. 450 p.m. whichever is the highest in addition to payment of Return of Capital.
28) What is Commutation?
It is the option to receive a capital sum today instead of receiving a monthly pension for rest of your life.
29) What is the rate of commutation?
It is upto 1/3rd of the Original Pension. Suppose the original pension is Rs.600/-, the commutation value is Rs.20,000/-. On commutation, the pension payable will be Rs. 400/-.
30) When will commutation be effective?
This will be effective from 16-11-98.
31) Employee is a member of The Employees’ Pension Scheme. What are his duties?
He should provide his employer with such details as would be required for the scheme purposes. He should submit his scheme certificate to his new employer if he changes his employment.
32) Anyone runs a covered establishment. What are his duties?
a) Furnish particulars of ownership.
b) He should obtain from each of his employees, pension scheme details in form 2 (R). He should send such details for all existing employees. In case of new employees, such details are to be sent within 3 months of date of enrollment.
c) He should maintain in Form 3A / Form 7 (PS) such account in respect of contribution as required.
d) Within 15 days of each month he will remit the contribution to the Pension Fund. If there is no employee he shall submit nil return in Form-12A / Form 6 (PS). Similar details about persons leaving the job if any in Form-10 / Form 5 (PS) should be submitted. Nil return may be furnished if no exit takes place.
e) Obtain particulars for (a) to (d) from contractors engaged by him in respect of employees employed by them, and furnish it to Regional Provident Fund Commissioner in the manner prescribed.
33) Will the pension once sanctioned remain constant?
No, this is likely to be increased consequent upon annual actuarial valuation.