Employee Pension Scheme
Employee Pension Scheme
The Employees Pension Scheme (EPS) was brought into force in the year of 1995 to cater to the employees of the organized sector. The scheme is applicable to all employees who are covered under the Employees Provident Fund (EPF) Scheme. Employees covered under this scheme will receive pension on a permanent basis, the pension amounts will eventually pass on to the family members upon the death of the employee. This article is an account on the various aspects of the scheme that every employee and employer should be aware of.
Features of the Scheme
The following are some of the salient features of the Employee Pension Scheme:
- It is a guaranteed pension plan authorized and supported by the Government, wherein the stipulated amount will be remitted to the employee upon retirement, without any changes to the same.
- Employees who are members of the EPF scheme are automatically enrolled into the EPS scheme
- Every employee whose monthly salary combined with DA is Rs 15,000 or lesser, must enroll into this scheme.
- The monthly pension amount will not be less than Rs 1,000.
- Pensions can be availed when the employee attains the age of 50, but there will be a reduction in the amount of eligible pension.
- The widow/widower of the deceased employee will receive pension upon the employees’ death. Children will receive pension until they attain 25 years of age.
- If the widow/widower opts for a re-marriage, the children of the employee will be the recipients of enhanced pension as such children are categorized as orphans.
- Any child who is physically challenged will receive pension for his/her entire lifetime.
Eligibility to Avail Pension
Employees are eligible to avail pension on the following grounds:
- The employee must have been a member of the Employees Provident Fund Scheme.
- The employee must have been in the service for a minimum period of 10 years.
- The employee have attained an age of 58.
- Pensions can be claimed at the age of 50, but there will be a reduction in the amount of pension. Pensions withdrawn in this manner is known as ‘reduced pension’.
- The employee is entitled to defer receiving their pensions until the age of 60. In such a scenario, the creditable pension will rise by 4% for every deferred year.
- Employees are entitled to avail pension if he/she gets debilitated.
Calculation of Eligible Service
Since we now understand that an employee must have served a minimum period of 10 years, let us learn the manner of calculation of eligible years. If the service of an employee is more than or equal to six months, it will be considered as a year. If it is less than six months, then the particular period is not considered for calculation. For instance, if an employee has served for a period of 10 years and 9 months, the number of years of service will be considered as 11 years. If an employee’s service is limited to a period of five years and three months, the number of years of service will be considered as five years.
Quantum of Contribution
Employers enrolled in this scheme must make a monthly contribution of 8.33% out of the salary offered to the employee. The Central Government contributes 1.16% of the same. The Governing Body can make a maximum contribution of Rs 6,500. Employees are exempted from making any contributions.
Note: – Salary=Basic salary + DA
Calculation of Monthly Pension
Monthly calculation of pension varies according to its classifications, which are as follows:
- Monthly pension calculation for people employed after 16/11/1995.
- Monthly pension calculation for people employed before 16/11/1995.
Monthly Pension Calculation for People Employed after 16/11/1995
The calculation pertaining to such employees involves the usage of a formula:
Pension amount = (Pensionable salary * Service Period) /70
Pensionable salary – the average income received by him in the preceding 5 years.
Note: If the employee has completed 20 years of service, then two more years will be added as a bonus in the equation. This provision is also applicable to the persons who were employed before 16/11/1995.
Monthly Pension Calculated for People Employed before 16/11/1995
Monthly pension for people employed before 16/11/1995 is fixed based on the number of years of service. We have formulated a table to provide you with a better picture.
|Years of Service
|Pension Amount – for salaries upto 2,500
|Pension Amount – for salaries above Rs 2,500
|Above 20 years
Pension Scheme Certificate
An employee needs to complete 10 years of service for him/her to be eligible for the EPS scheme. However, employees who haven’t completed the prescribed years of service are not left in the lurch; as they have been provided with an alternative in the form of a pension scheme certificate. The certificate is used for the purpose of adding up to an employee’s previous service period, in the event of a rejoining.
Forms Pertaining to the Scheme
The employees pension scheme prompts the usage of the following forms:
|Name of the Form
|Who should use it?
|Why is it used?
|Withdrawal benefit/Scheme Certificate
|To avail pension after the age of 58/To avail pension before the age of 58 but after 50/To avail disability pension
|Nominee or Widower/Widower or Children
|To avail family pension/To avail children or orphan pension/To avail dependent or nominee pension
|Must be submitted by the recipients of pension or children every November. It must be submitted to the manager of pension disbursing banks.
|Must be submitted by the widower every year/By widow at the beginning of pension. Either way, the form must be submitted to the manager of pension disbursing banks.