Introduction
Employee Pension Scheme is a social security scheme and it impacts large section of employees in India. Employee Pension Scheme is part of Employee Provident Fund (EPF) in India. Recently Employee Pension Scheme is in news because of changes government has brought in this scheme. These changes may impact personal finance of lakhs of employees. In this post we will understand Employee Pension scheme in details, examine its benefits, calculations and latest updates.
What is Employee Pension Scheme?
Central Government of India has introduced deposit scheme from time to time to inculcate saving habit among people for future needs. In this endavour the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (EPF) came into existence. One of the scheme under this Act is Employee Pension Scheme which was introduced in 1995. It is a contributory scheme to create a retirement corpus and give monthly pension to employees in factories and other establishments. Whereas the Old Pension Scheme is applicable for government employee.
The EPF Act and its schemes are administered by a three party Board known as the Central Board of Trustees, Employees’ Provident Fund, consisting of representatives of Government (Both Central and State), Employers, and Employees. The Board is assisted by Employee Provident Fund Organisation (EPFO) with its branches across the country. The EPFO is under the administrative control of Ministry of Labour and Employment, Government of India. The Board operates three schemes – EPF Scheme 1952, Employee Pension Scheme 1995 (EPS) and Employee’s Deposit Linked Insurance Scheme 1976 (EDLI).
Why is Employee Pension Scheme Important?
The EPF is a deposit scheme which can be withdrawn in case of emergency or at the time of retirement as a lumpsum amount along with accrued interest. It does not guarantee a regular payout after retirement. Therefore, the Employee Pension scheme was introduced to ensure a regular income after retirement.
Features of Employee Pension Scheme
- This scheme is automatically enrolled to members of EPF.
- Employee earning a salary of ₹15,000 (Basic + Dearness Allowance) & below can enroll for this scheme.
- It is backed by Government, therefore risk free with fixed return.
- The Employee Pension Scheme covers every organisation in which 20 or more persons are employed. However, organisations having less than 20 employees can also be covered, subject to certain conditions and exemptions.
- Only the employers can directly contribute towards EPS, not employee.
- In case of a job change, only the employee pension fund is transferred to the new employer, whereas, the EPS is not transferred.
- The employer and employee contribute 12% of the employee’s salary (Basic +DA) towards EPF. Out of the employer’s contribution i) 3.67% is contributed towards EPF and ii) 8.33% towards Employee Pension scheme (out of which 0.5% goes toward EDLI, 1.1% towards EPF administration and 0.01% towards EDLI administration).
- Apart from the above the Government of India contribute 1.16% as well.
- The minimum monthly pension amount that the individual will receive is ₹1,000.
How to Calculate Employee Pension?
The monthly pension under Employee Pension Scheme is calculated under 2 approach.
- The pension for individual who have joined before November 16, 1995 is fixed and based on their salary and tenure of work as given below:
| Number of years of service | Pension amount
(if salary is ₹2,500 and less) |
Pension amount
(if salary is more than ₹2,500) |
| 10 | 80 | 85 |
| 11-15 | 95 | 105 |
| 15-20 | 120 | 135 |
| More than 20 | 150 | 170 |
- The pension for individual who have joined after November 16, 1995 is calculated as per the following formula,
(service period X pensionable salary)/70, the pensionable salary is average income of last 5 years.
Withdrawal under Employee Pension Scheme
An employee cannot withdraw pension amount if he has worked for less than 10 years and currently employed. He can withdraw the fund once the employee has left the company and not started a new job.
An employee working for more than 10 years will not be given withdrawal benefits. He can draw the money as pension only after completion of 58 years.
The pensioner can withdraw an early pension after completion of 10 years of service, attaining 50 years of age but less than 58 years. In that case the amount payable will be reduced at the rate of 4% for every year less than 58 years.
Type of Pension
Under Employee pension scheme, the pensioner will get pension amount after completion of 58 years of age till his or her death. If the pensioner opt, the following type of pension will be paid,
Widow pension – The widow member of the family is eligible for vridha pension or widow pension. The pension will be paid until her remarriage or death. If there is more than one widow, the eldest will be eligible for pension.
Child pension – The surviving children are paid pension if pensionable member dies and the children (maximum 2) are below age 25 years. The amount payable will be 25% of the widow pension. This will be in addition to widow pension.
Orphan pension – If the pensionable member dies and there is no surviving widow or widow remarry then upto two surviving children will be paid orphan pension @75% of monthly widow pension.
How to check balance in EPFO portal
All members of EPF are given an Universal Account Number (UAN). Once the UAN is activated, the following steps may be followed to check outstanding balance:
- Visit the official website of EPFO that is https://www.epfindia.gov.in/site_en/index.php.
- Under the Services dropdown, select the “For Employees” section.
- Scroll down and select the “Member Passbook” option under the “Services” option.
- Enter the user Name, which is the UAN number, password created, captcha details on the screen and finally, click on “Login.”
- Next, click on your respective Member ID for the EPS pension scheme account.
- What is the pension contribution in EPF till date will be displayed on the screen under the “Pension Contribution”.
- You can easily download the details for your future reference.
Latest news about Employee Pension Scheme
- When Employee Pension Scheme was introduced in 1995, the maximum pensionable salary was capped at ₹5000. It was later raised to ₹6,500/- in June 2001.
- In August 2014, Employee pension Scheme was amended and i) the pensionable income cap raised to ₹15,000, ii) allowed employer and employee to contribute 8.33% of their actual salary if it exceeding the cap of ₹15,000/- and members to contribute additional 1.16% of their salary if it exceeds ₹15,000 a month.
A 6 month’s time was given to existing members as on September 1, 2014 to opt for amended scheme.
- In November 2022, pronouncing its verdict on a PIL, the Hon’able Supreme Court allowed Employee Pension Scheme members to opt for amended scheme of August 2014, even though they did not opt for amendments in June 2001 within next 4 months along with their employer. The apex court also held that EPFO cannot ask members for additional 1.16% of salary if it exceeding cap of ₹15,000/-.
- In December 2022, EPFO decided to implement the Hon’ble Supreme Court order and advised field functionaries to publish and obtain applications from members along with employer opting amended scheme. The deadline was March 3, 2023.
- Subsequently the deadline was extended to May 3, 2023 and further to June 26, 2023.
There are many more aspect to know about EPF and EPS. I hope you will find this article useful for basic understanding about EPS. If you did, please share it with your friends and family and help us reach more people. If you have any questions or you need clarification on what I have written here, do ask in the comment section below, and I will be happy to respond.