Employee Pension Scheme (EPS)
What is the Employee Pension Scheme (EPS) and How It Works
In this post, we will discuss the Employee Pension Scheme (EPS) and how it helps secure a steady income for employees after retirement. Let’s explore its features, benefits, and key aspects to understand how it works and how it can benefit you.
Let’s look at each section in detail:
What is an Employee Pension Scheme ?
The Employee Pension Scheme (EPS 1995) was started by the EPFO on 19th November 1995. It’s a social security scheme meant to give pension benefits to employees after they retire.
This scheme is for both old and new EPF members. The idea is simple, once an employee turns 58, they can start getting a pension through EPS. The EPFO looks after the scheme and makes sure everything runs smoothly.
Every month, both the employee and the employer contribute 12% of the employee’s basic Salary plus DA. From the employer’s share, 8.33% goes to EPS and the remaining 3.67% goes to the EPF. The employee’s full 12% contribution goes directly into the EPF.
Employers responsibilities
Employer’s Key Duties for EPF Pension Contribution:
- Every month, the employer must set aside 8.33% of the employee’s basic pay plus DA (from the employer’s share) and send it to the Employees’ Pension Fund by the 15th of the next month.
- The Central Government also adds 1.16% of the employee’s pay to the Pension Fund.
- The employer has to make sure contributions are made for all workers; whether they are hired directly or through a contractor.
- If a worker becomes fully or permanently disabled while in service, the employer must ensure at least one month’s EPS contribution is made so the employee can get pension benefits.
- All admin charges related to EPF have to be paid by the employer.
EPS Contribution Breakdown
Both the employer and the employee contribute 12% of the employee’s basic salary plus DA to the EPF.
Out of the employer’s 12% share:
- 3.67% goes to EPF
- 8.33% goes to EPS (Pension Scheme)
In addition, the Government also puts in 1.16% towards the Pension Scheme.
Employees don’t have to contribute to EPS separately.
Features of Employee Pension Scheme
The Main Features of the EPS Scheme are:
- EPS is backed by the Government of India, so the returns are safe and guaranteed. There’s no risk, and the pension amount is fixed – it won’t change later.
- If your basic salary + DA is ₹15,000 or less, you have to be enrolled in EPS.
- You can start taking pension from age 50, but the amount will be lesser as it’s given at a reduced rate.
- If the widow/widower remarries, their children will be treated as orphans and will get extra pension.
- Anyone who joins EPF is automatically added to EPS too – no separate process needed.
- Minimum pension under EPS is ₹1,000 per month.
- A widow or widower will keep getting pension till their death. After that, their children will get it till they turn 25.
- If the child is disabled, the pension will continue for their lifetime.
Types of Pension under the Employees' Pension Scheme
1.Orphan Pension
If the member dies and there’s no spouse, then the children can get the pension. It will be 75% of the monthly pension. This is given to a maximum of 2 children, starting from the eldest.
2.Widow / Widower Pension
If the member dies and leaves behind a spouse, the widow or widower will receive a monthly pension. The member should have worked for at least 1 month for this benefit to apply.
3.Child Pension
This is paid along with the widow pension. Each child will get 25% of the widow’s pension every month, up to the age of 25. Maximum 2 children can get this.
4.Reduced Pension
If a member has completed 10 years of service and is between 50 and 58 years, they can take early pension. Each year below 58 will result in a 4% reduction in the amount.
How to Calculate EPS Pension
- Pensionable Salary
- Pensionable Service
a) Pensionable Salary
Pensionable Salary means the average monthly salary you earned during the last 12 months before you left the EPS scheme.
If there were some days in those 12 months where no contribution was made (like if you joined mid-month), then those days won’t be counted. But don’t worry, you will still get the full benefit as if the full month’s salary was considered.
Example:Let’s say your salary is ₹15,000 per month, but you joined a company on the 3rd of the month. Technically, you would earn ₹14,000 that month. But for EPS, the full ₹15,000 is counted. So, EPS contribution = 8.33% of ₹15,000 = ₹1,250.
Earlier, the maximum pensionable salary used to be ₹6,500, but now it’s ₹15,000 per month.
b) Pensionable Service
This is the total number of years you’ve worked and contributed to EPS.
If you have worked in more than one company, your total service from all companies will be added; but only if you transfer the EPS account properly. Make sure to get the EPS Scheme Certificate from your old employer and submit it to your new one every time you switch jobs.
If you complete 20 years of service, you get a bonus of 2 years added to your pensionable service.
But, if you leave the job before completing 10 years and withdraw your EPS money, your service count will reset to zero in your next job.
Note: Pensionable service is always rounded to the nearest 6 months.
- If you work for 8 years and 2 months, EPS will consider 8 years.
- But if it’s 8 years and 10 months, it’ll be considered 9 years.
The minimum service needed to qualify for pension is 6 months.
Difference between EPF and EPS
Both EPF (Employees’ Provident Fund) and EPS (Employees’ Pension Scheme) are retirement schemes under EPFO. But they work differently. Here’s a quick comparison to help you understand:
| Particulars | EPF (Provident Fund) | EPS (Pension Scheme) |
| Employee’s contribution | 12% of basic salary + DA | Nil |
| Employer’s contribution | 3.67% goes to EPF | 8.33% goes to EPS |
| Who is eligible? | All salaried employees | Only those earning up to ₹15,000 basic + DA |
| Interest on amount | Interest is added monthly and paid yearly. Govt. decides the rate. | No interest is given. |
| Maximum contribution | 12% of salary | Limited to 8.33% of ₹15,000 = ₹1,250 per month |
| Tax | EPF interest is tax-free unless yearly contribution crosses ₹2.5 lakh. Also, if the employer’s total contribution to EPF + NPS + superannuation fund crosses ₹7.5 lakh in a year, the extra part is taxable. Withdraw before 5 years? 10% TDS is cut. | Pension and lump sum are taxable when received. |
| Withdrawal rules | You can withdraw full EPF after 58 years or if jobless for 60+ days. | Pension starts after 58 years. |
| Early withdrawal | Allowed for marriage, education, home, loan repayment, etc. (with conditions). | Early pension from 50 years. If service is less than 10 years, lump sum can be taken after 58. |
| How much do you get on early exit? | Full EPF balance | Based on your years of service |
| 80C Tax Benefit | Yes, up to ₹1.5 lakh on your contribution | No, because employee doesn’t contribute |
Forms for EPS scheme
Various EPS Forms and Their Use:
| Form | Who can use it? | Why is it used? |
| Form 10C | Member or Beneficiary | To get a Scheme Certificate or withdraw pension amount before 10 years of service. |
| Life Certificate | Pensioner | To confirm the pensioner is alive. Has to be given to the bank every November. |
| Form 10D | Member/Nominee/Widow/Widower/Children | To claim monthly pension after 50 years of age. Also used for widow/child pension. |
| Non-Remarriage Certificate | Widow or Widower | To declare they haven’t remarried. Needs to be submitted every year in November. |
| New Form 11 | Member | To submit Aadhaar and bank details when joining a new job. UAN and cheque needed |
Benefits of the employee pension scheme
1.Guaranteed monthly pension
EPS is a government-backed scheme, so your money is safe and returns are assured. Right now, the minimum pension you will get is ₹1,000 per month, and as per news reports, this may be increased to ₹2,000. When you are ready to start your pension, just fill Form 10D and get your EPS certificate.
2.Pension for your family after you
If something happens to you, your spouse will continue to get the pension. After them, your children will receive it till they turn 25. If any child is differently abled, they will get the pension for life.
3.Pension in case of disability during service
If you become totally and permanently disabled while working, you will still get a monthly pension, even if you haven’t completed the full service period. The only condition is that your employer should have deposited at least one month’s EPS contribution. Once eligible, you will receive this pension for life.
That brings us to the end of the post. If you have any questions or comments, please feel free to share them below, and we would be happy to respond.
FAQs
Q1. Is EPS taxable?
Ans: Yes, both the pension and lump sum you get from EPS are taxable. EPF interest is usually tax-free, but if your yearly contribution is more than ₹2.5 lakhs, then the extra interest will be taxed as per your income slab.
Q2. Where do I get my EPS account number?
Ans: Your EPS account number is the same as your PF Member ID. You can use this number to contribute to EPS and check your details.
Q3. What is the pension contribution under the EPS account?
Ans: Every month, the employer adds around ₹1250 to the EPS account. This amount is shown as the pension contribution in the EPS passbook.
Q4. How many years of service should an EPS member complete to get pension?
Ans: To get pension, the employee must complete at least 10 years of service.
