You see a regular contribution from your employer towards EPS every month. And you have been told that this is a mandatory contribution towards your retirement pension.
But, have you ever wondered... what's the exact benefit of this deduction and how much EPS amount you will get when you finally retire?
Not many know their potential EPS payouts. And to be honest, EPS is not that straightforward to calculate as it's driven by a number of rules that have changed quite a bit over the years.
In this post, I will try and demystify these rules and resultant calculations.
I have also created what I believe is the most comprehensive EPS calculator available right now anywhere and you can use this calculator to help you estimate your pension amount quite easily.
So, let's get going...
EPS stands for Employee Pension Scheme and is geared towards providing a guaranteed monthly payout for employees of organized sector.
These employees otherwise may not have any other retirement scheme and this scheme is a failsafe on the part of the Government.
EPS is managed by EPFO and is also sometimes also called EPF Pension. The key points with respect to this scheme are as follows:
- 8.33% of the Employer's monthly contribution up to a max of INR 1250 per month goes towards EPS (This maximum was INR 541 per month prior to Sep 2014).
- EPS doesn't earn any interest
- You are eligible for EPS if you have rendered a minimum service of 10 years. For a period less than 10 years, you won't be eligible for pension, though you will still be eligible for EPS withdrawal benefits.
- If you have already completed 10 years of service, but are aged less than 50 years, you will have to wait till you attain that age before you start getting a monthly pension.
- If you have completed 10 years of service and are aged more than 50 years but less than 58 years, you can get monthly pension if you are already retired.
- If you have completed 10 years of service and are aged more than 58 years, you can get EPS regardless of whether you are retired or not.
- How much EPS you will earn will depend upon your number of years in service.
- Any service period of 6 months or more, is rounded up to one year, while any period less than that is ignored. So 10 years and 6 months will be treated as 11 years while 10 years and 5 months will be treated as 10 years.
- The minimum period that's taken into account for EPS calculation is 10 years while the maximum service period can be 35 years.
- The minimum EPS is INR 1k/month. The maximum for most employees will be INR 7.5k/month.
- If you haven't worked or contributed to EPS for some years in-between, that period will be deducted from the total period.
When it comes to EPS calculation, most people are taken aback by the sheer complexity of the EPS calculations.
Not many know all the rules and formulas governing these calculations and hence they won't know the exact monthly amount they will get at retirement. Not knowing this exact amount may hamper what is otherwise a good retirement planning process.
To be fair, the EPS calculation is not that straightforward. Especially, if you started your job prior to Nov 16th, 1995. This is because a different pension scheme was in effect prior to that date.
The two pension schemes EPFO has had over the years:
- Family Pension Scheme 1971 (FPS-71) - Active from 1971 till 15th Nov, 1995
- Employees Pension Scheme 1995 (EPS-95) - Came into effect on 16th Nov, 1995
Now, anybody who started their job post Nov 15, 1995 will be covered under the second scheme and hence the calculation is relatively simpler. However, employees who started their job prior to Nov 16, 1995 and have continued past that date are supposed to be covered under both the schemes.
Their pension will be calculated separately for both the schemes (under different rules and using different formulas) and then added.
Additionally, even if you are only covered under EPS-95 scheme, there was a change made effective Sep 1st, 2014 where the minimum pensionable salary was raised to INR 15k per year (INR 1250 per month) from INR 6500 per year (INR 541 per month). This will change calculations.
Essentially, when you joined and when you retire, can change your EPS calculations quite significantly.
Let's look at two key scenarios - first where you joined on or after Nov 16, 1995 and the second where you joined prior to that date...
Started Service after Nov 16th, 1995
If you started your job after 16/11/1995, your EPS amount can be calculated using the following formula
Pension Amount = (Pensionable Salary * Service Period)/70
This pension amount is subject to a minimum of INR 1k/month starting 2014.
Pensionable Salary here is your average salary for the preceding 60 months.
Now this may not necessarily be same as your actual salary.
Rather, it's the amount that you have actually been contributing towards your EPS over the years. Starting Sep 1st, 2014, the maximum contribution is limited to INR 15k per year, while prior to that date it was limited to INR 6500 per year.
Whatever your contribution has been for the last 60 months, an average of same will be considered as your Pensionable Salary.
Service Period is the total number of years you have spent on your job(s).
Note that any fractional years are rounded off to the nearest whole year. As an example, 15 years and 3 months will be considered as 15 years while 15 years and 7 months will be considered as 16 years.
If you have completed more than 20 years in service, you will get an extra bonus of 2 years. e.g if you joined in 1996 and are retiring in 2016, you have completed 20 years. For the purposes of EPS calculation, your service period will be 20 years + 2 bonus years i.e. 22 years.
Earlier, these bonus years used to be applicable only if your service period under the new scheme was more than 20 years and any service period under the old scheme was ignored. However, EPFO changed this rule in July 2016 and combined the service periods across the old and the new schemes to determine the eligibility of this benefit.
Now, you can club your service periods across the old scheme and the current scheme and if this clubbed period exceeds 20 years, you are eligible for the bonus years.
However, the maximum service period for the purpose of this calculation will be 35 years. Essentially, any service period beyond 33 years will be treated as 35 years for the purpose of EPS calculation.
Do note that you are eligible for a pension only after you have completed at least 10 years.
Since fractional years are rounded off, this limit is actually 9 years and 6 months. So if you have spent less than 9 years and 6 months, you won't be eligible for EPS
If you haven't spent at least that much time, you won't get any pension. But you may still make an EPS withdrawal (I will cover this in the pension withdrawal section). Also, note that if you have withdrawn your EPS in the past, those years won't be counted in your total service period.
Let's look at some examples to understand this calculation better...
Example 1 - Dave works for 14 years, starting 15th July 2016 and retires on 20 Aug, 2031. His average salary at the time of retirement is INR 200000 per month.
In this case, Dave will work for 15 years, 1 month and 6 days, which will be rounded off to 15 years. Maximum pensionable salary is INR 15000 regardless of his actual income.
So Dave's monthly EPS will be 15000*15/70 = INR 3214 per month, which is more than the stipulated minimum of INR 1k/month
Example 2 - Mr X started working when he was 18 years old, he works for 40 years starting Sep 10 2010 and retires on Sep 9th, 2050
If Mr X is making more than 15k per month, his maximum pensionable salary is limited to INR 15000. Also, as he has worked for 40 years, you may think that he should get two bonus years, but that's not the case as the maximum number of years is limited to 35.
In this case, EPS for Mr X will be INR 35 * 15000/70 i.e. INR 7500/month
Example 3 - Miss Y works for 11 years from Sep 1st 2007 till Aug 31st, 2018
In this case, we will have to take into account different pensionable salary that was in effect till Sep 1st 2014.
The average pensionable salary for Miss Y for the last 60 months will be INR 13300 (i.e. INR 15000 for last 48 months and INR 6500 for 12 months prior to that).
Hence the EPS will be INR 13,300 * 11/70 i.e. INR 2090/month
Example 4 - Mrs Z works for 20 years and 10 months, starting Sep 1st 2006 till Jun 31st, 2027
In this case, the number of years after rounding off will be 21.
Since anything more than 20 years gets a two year bonus, so the no of years that we need to take into account will be 21+2 i.e. 23 years.
Also, note that since we only take into account the average for last 60 months, there is no reduction in average pensionable salary on account of change of contribution from INR 6500 to INR 15000
The EPS here will be INR 23*15000/70 i.e. INR 4928 per month
Above examples cover all key cases and I hope EPS calculation for people who joined their jobs post Nov 15, 1995 is clear now.
To make things simpler, you can simply use the EPS calculator that I have included as part of this guide. Scroll down to check it out or alternatively click here.
Now, let's look at the second case, i.e if the job started before Nov 16, 1995...
Started Service before Nov 16th, 1995
If you started your job prior to Nov 16th, 1995, your EPS calculation will have 2 components, each of which need to be ascertained separately:
- Past Service Benefit is the portion of pension amount for job rendered from day of your joining till Nov 15, 1995
- Pensionable Service Benefit is the portion of pension amount for the service period starting Nov 16, 1995 till the date of commencement of pension
The final EPS formula for these folks is
Total Pension = Past Service Benefit + Pensionable service Benefit
For example, if your date of commencement of pension is after Nov 16, 2005 (i.e. >10 years since the adoption of EPS-95)
- Past Service Benefit will be calculated till Nov 15, 1995
- Pensionable Service Benefit will be calculated from Nov 16, 1995 till your date of commencement of pension. This will be subject to a minimum of INR 635 per month
Let's look at these calculations in detail:
Past Service Benefit Pension Computation
Past Service Benefit depends upon your wage as of Nov 15, 1995. To calculate this benefit, you will use two tables.
The first table covers your pension amount depending upon your pay band as of Nov 15, 1995.
Table 1: Past Service Benefit Amount
Service till Nov 15, 1995
Basic Salary Upto 2500
Basic Salary > 2500
Up to 11 years
> 20 years
e.g. if a member had completed more than 20 years in service on Nov 15, 1995 and had a basic above INR 2500 on that date, he/she will be eligible for INR 135/month.
This pension amount is further subject to a multiple if the member hadn't completed 58 years on Nov 16, 1995.
Essentially, you will have to increase the base pension amount depending upon the number of years of service remaining after Nov 15, 1995. Any service period that's less than six months is ignored.
Hence the formula for Past Service Benefit is:
Past Service Benefit = Base Amount per Table 1 * Multiplication factor from Table 2
Table 2: Multiplication Factor for computation of Past Service Benefit
Difference in Years
Less than 1
Less than 2
Less than 3
Less than 4
Less than 5
Less than 6
Less than 7
Less than 8
Less than 9
Less than 10
Less than 11
Less than 12
Less than 13
Less than 14
Less than 15
Less than 16
Less than 17
Less than 18
Less than 19
Less than 20
Less than 21
Less than 22
Less than 23
Less than 24
Less than 25
Less than 26
Less than 27
Less than 28
Less than 29
Less than 30
Less than 31
Less than 32
Less than 33
Less than 34
As an illustration, if the member above retires two years after Nov 15, 1995 (let's say on Nov 30, 1997), the initial past service benefit (i.e. INR 135) will be multiplied by 1.212 (the multiplication factor for less than 3 years).
Hence, the final past service benefit will be INR 135 * 1.212 = INR 163.62
Pensionable Service Benefit Pension Computation
The pensionable service benefit will be computed as if the employee has started a fresh job from Nov 16, 1995.
The calculation for same is exactly the same as was covered earlier, i.e.
Pension Amount = (Pensionable Salary * Service Period)/70
But, in this case, it's subject to a minimum of INR 635 per month. All other rules, that apply to those who started their jobs after Nov 15, 1995 will apply.
The aggregate of Past Service Benefit and Pensionable Service Benefit will be the total EPS pension. This aggregate pension is subject to a minimum of INR 1000 per month starting 2014.
To illustrate this, let's take an example.
Let's say Mr A joined his service on June 1, 1990 and will retire on Jun 1, 2020.
He will have a total service period of 30 years. Let's say, he was making INR 10000 per month on Nov 15, 1995 and INR 200000 per month at the time of his retirement.
Let's first calculate his past service benefit.
His salary as of 15 Nov, 1995 was more than 2500 and his past service duration is 5 years.
Since this duration is less than 11 years, his pension for Past service will be INR 85 per month as per first table.
Now, to calculate the applicable multiplication factor, we need to know the number of years between his date of retirement and Nov 15, 1995.
In this case that number comes to 25 years and multiplication factor against same is 6.589. Hence, final pension against his past service will be INR 85 * 6.589 = INR 560 per month
Now, let's look at his pensionable service benefit.
He spent 25 years in service after Nov 15, 1995 and hence he will get two years of bonus. His total effective service period to calculate pensionable service benefit will be 25 + 2 i.e. 27 years.
Let's say that his pensionable salary has been consistent at INR 15000 for all of the last 5 years of his service. With that assumption, his pension amount will be INR 15000 * 27/70 i.e. INR 5785 per month
The total EPS amount for Mr A will be INR 560 + INR 5785 i.e. INR INR 6345 per month
But what if you hadn't completed 10 years post 1995 and retired prior to that? While I believe that most of my readers are those who are yet to retire, for the purpose of the comprehensiveness of this guide, let me cover those cases as well.
If your date of commencement of pension is between Nov 16, 2000 and Nov 16, 2005, your total superannuation pension will be equal to a sum of
- Pension for service rendered from Nov 16, 1995 till the date of retirement (even if it's less than 10 years) subject to a minimum of INR 438 per month
- Pension for past service benefit calculated as per formula covered before
This total was earlier subject to a minimum of INR 600 if the total service period (i.e. from the date of joining till retirement) was 24 years or more.
For a period less than that, the pension was proportionately reduced till a minimum of INR 325 per month.
However, the new minimum limit of INR 1000 per month will mostly supersede it.
If your date of commencement was before Nov 16, 2000 but after Nov 15, 1995, your total pension will be aggregate of
- Pension for service rendered from Nov 16, 1995 till the date of retirement subject to a minimum of INR 335 per month
- Pension for past service benefit as per formula covered before
This sum was subject to a minimum of INR 500 per month for an eligible service of 24 years or more.
It is to be reduced proportionately if the eligible service was less than 24 years till a minimum of INR 265 per month.
This again should largely be superseded by the new minimum pension limit of INR 1000 per month.
As noted earlier, you are eligible for monthly pension only if you have completed a minimum of 9 years and 6 months in service.
However, what if you have spent less time than that?
Let's look at that case as well...
Pension Withdrawal Benefit Calculation
Pension withdrawal benefit is only available to those who haven't yet completed 9 years and 6 months of service in total. If that's the case with you, you can withdraw a one time amount from your EPS account.
The way it works is that you take your pensionable wage on the date of exit and multiply that by a factor dependent upon your number of years in service. The fractions are rounded off as earlier.
This multiplication factor table is as follows:
No of Years
As an example, if you worked for 7 years from 2007 till 2015, your total EPS contribution was INR 53952 over these 7 years (assuming you made a contribution of INR 541 per month till Sep 2014 and INR 1250 post that).
However, your withdrawal benefits are independent from your actual contribution and will depend upon your wages as of date of exit.
Let's say your effective wage on date of exit was INR 15000 per year (i.e. the maximum contribution of INR 1250 per month) and hence your withdrawal benefit will be INR 15000 * 7.54 i.e. INR 113100
These withdrawal benefits are only applicable if you have completed at least six months. Also, if your total service has crossed 9 years and 6 months, you will not be eligible for withdrawal as now you become eligible for EPS.
Two more things
Normally, you will start getting a monthly pension once you turn 58 years. This will be true, regardless of whether you are actually retired or not.
However, you have an option to either prepone or postpone your date of of pension commencement.
If you prepone your date of pension commencement, your monthly payout will be reduced and conversely, if you postpone, your monthly pension will be increased.
Let's cover both these cases:
Early or Preponed Pension (Reduced Pension Calculations)
If you are already 50 years or more, you don't have to wait for you to turn 58 years and can prepone your pension commencement date. Note that you must have already retired to get this benefit.
In this case, your monthly amount will be reduced by 4% for each year your age falls short of 58 years.
Deferred Pension (Enhanced Pension Calculations)
Similarly, you can choose to defer your EPS commencement even if you have turned 58 years old.
This deferment can be done for a maximum of 2 years and your monthly payout will increase for each year you defer. You can choose to defer with or without contribution.
If you defer without contribution for 2 years, you will get an extra 8.16% each month. If you defer with contribution, your EPS may increase further as your number of years of service may also increase.
Please note that you can only defer if you have already completed 10 years of eligible service by the time you turn 58.
Next is a complete EPS calculator that takes into account all these rules.
Detailed EPS (EPF Pension) Calculator
I believe that this is the most comprehensive and accurate EPS calculator on internet right now. It took me a week to create this calculator but now it covers every nitty gritty of every single EPS rule.
You can also use it to calculate your early or deferred pension or for that matter your pension withdrawal benefit if applicable. This calculator works regardless of your retirement date and is fully updated with respect to the latest EPS rules.
Use it and let me know of your feedback.
Other Common Questions
When will you start getting your pension?
You will, by default, start getting it once you attain 58 years of age. This will be regardless of whether you are retired or not. But as highlighted in the previous section, you can choose to prepone or defer this commencement.
Can you contribute higher than the minimum contribution of INR 15000 per year?
No, it's no longer possible.
Earlier it was possible for your employer to pay higher than the minimum stipulated amount if they also pay Government's share of 1.16%.
However, starting 2014, this has been stopped and any employer who didn't choose to pay higher than the minimum with-in six months can't choose to pay more now.
And that's all. This covers everything on EPS calculations. Let me know if you have a question.