Good news for PF account holders, they will get Rs 7500 monthly pension after 23 years of service
Under the current regulations, 12% of an employee's basic salary and dearness allowance is contributed to the Provident Fund (PF) account each month. An equal 12% is contributed by the employer, of which:
The Employees’ Provident Fund Organisation (EPFO) oversees the Employees’ Pension Scheme (EPS), a vital initiative aimed at providing financial security to private-sector employees after retirement. Introduced in 1995, EPS applies to individuals working in the organized sector. To be eligible, employees must complete a minimum of 10 years of service and reach the age of 58 years.
Current Rules for Pension Contribution
Under the current regulations, 12% of an employee’s basic salary and dearness allowance is contributed to the Provident Fund (PF) account each month. An equal 12% is contributed by the employer, of which:
- 8.33% goes to the EPS account.
- 3.67% remains in the PF account.
However, the pensionable salary is capped at ₹15,000, meaning a maximum of ₹1,250 per month is contributed to the EPS account.
Pension Calculation under Current Rules
For instance, if an employee starts their career at the age of 23 and retires at 58 after 35 years of service, the pensionable salary is calculated based on the average monthly salary over the last 60 months. The formula for monthly pension calculation is:
Pensionable Salary × Pensionable Service / 70
Example:
If the pensionable salary is ₹15,000:
15,000 × 35 / 70 = ₹7,500
Higher Pension Option Explained
In recent years, the government introduced a higher pension option to benefit employees earning above the ₹15,000 threshold. Employees who were EPF members before September 1, 2014, and continued membership afterward, are eligible for this option.
Under this scheme, many employee unions demand an increase in the pensionable salary limit to ₹25,000. The government is considering raising this cap to ₹21,000.
Calculating Pension for Higher Salaries
If the pensionable salary increases to ₹21,000:
21,000 × 35 / 70 = ₹10,500
For a salary cap of ₹25,000:
25,000 × 35 / 70 = ₹12,500
While the exact calculation method for the higher pension scheme is yet to be declared by EPFO, these projections are based on the previous formula. Clarity on the new rules is awaited.
Key Highlights of Pension Eligibility
- An employee becomes eligible for a pension after 10 years of continuous service under the EPS scheme.
- Regular pension begins at 58 years of age.
- Early pension can be availed at 50 years with a reduction.
- Employees with less than 10 years of service can withdraw their entire pension fund.
Important Updates on EPS
- Employees opting for higher pension schemes may see their EPFO contributions adjusted to include a larger share for EPS.
- Employers will need to recalculate contributions if the government implements the proposed cap increase to ₹21,000 or ₹25,000.
Employee Perspectives
The option for a higher pension has been welcomed by employees earning higher wages, as it promises financial stability in retirement. However, concerns remain regarding the reduction in PF account balances due to increased EPS contributions.
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