You will soon have the opportunity to pay 8.33% of your basic salary and dearness allowance (if applicable) to the Employee Pension Scheme (EPS) if you joined the EPF before to 1 September 2014. Soon, further information about this choice and an online form to request a higher pension will be available on the website of the Employees Provident Fund Organization (EPFO).
The maximum amount that an employee can currently contribute to their EPF account is 12% of their Basic Salary plus Dearness Allowance. The employer makes an equal 12% contribution, of which 8.33% goes to EPS and 3.67% goes to the employee's EPF account. The statutory wage ceiling of Rs. 15,000 determines the employer's 8.33% contribution, thus only Rs. 1250 (8.33% of Rs. 15,000) is deposited into your EPS account each month.
Employees who have been EPF members since before 1 September 2014 would have the opportunity to contribute 8.33% of their actual Basic + DA salaries to EPS in compliance with a Supreme Court decision. To demonstrate how much more pension, you can receive by choosing the EPFO higher pension option, the following examples are provided.
Example: If Basic Pay is Rs 40,000
What is happening now: Every month, 12% of your Basic Pay (Rs 4800) is transferred to your EPF account. EPS receives Rs. 1250 of the employer's contribution, which is also equal to 12% of your basic salary, and your EPF account receives the remaining Rs. 3550.
What will happen if you opt for the higher pension: According to the Supreme Court, employees will have the option of choosing a higher EPS contribution depending on their actual income, therefore 8.33% of your basic pay, or Rs 3332, can be allocated to EPS. There is a catch, though.
The EPFO will subsequently take the amount from your PF account towards EPS from your joining date or November 1, 1995, whichever is later, if you choose the higher pension option.
How much pension can you get: The EPS pension is calculated using the formula (Pensionable Salary X Pensionable Service)/70.
If you don’t opt for the higher pension: The average pensionable salary at the time of retirement over the previous 60 months is used to compute the EPS pension. For instance, if you started working for EPS at age 25 and retired at age 58, you may receive a monthly pension of Rs. 7071 [(Rs. 1500033)/70].
If you opt for the higher pension: If you choose the higher pension, the pension that will be given to you when you retire will be determined using your actual Basic Salary plus Dearness Allowance (if applicable). For instance, the pension would be Rs 18,857 [(Rs 4000033)/70] if your average pensionable pay (Basic + DA) during the previous 60 months was Rs 40,000 at the time of retirement.
You may be eligible for a pension of Rs 37,714 [(Rs 8000033)/70] if your pensionable salary is Rs 80,000.
