Employee Pension Scheme - EPS

About Employee Pension Scheme (EPS)

As per the latest changes in the Employee Pension Scheme that are effective since 1st September 2014, the EPF is distributed as 12% of the employee’s salary goes into the EPF account and 12% of the employer's salary is divided into 3.67% for EPF, 8.33% for EPS, 0.5% for EDLI 1.1% as EPF admin charges and 0.01% as EDLI Admin charges. The minimum pension under EPS is Rs 1000 and EPF is mandatory for those employees drawing a salary less than Rs 15,000 a month. EDLI cover for each employee has been raised from Rs 1.56 Lakh to Rs 3 Lakh.

• Employees are automatically enrolled into the EPS Scheme only if they are members of the EPF scheme.
• The central government also contributes to an employee’s EPS along with employer contribution of 8.33% of the salary. Central government contributes 1.16% of the employee’s salary but salary is considered as basic pay plus daily allowance and is taken as a maximum of Rs 6500
• Contributions made to the EPS by the employee does not generate any interest.
• Eligible service is calculated in intervals of 6 months. If an employee has had a service of more than 6 months it is rounded to the next year and less than 6 months is rounded to the previous year. For example if an employee has had a service of 18 years and 8 months, the service is considered as 19 months and if the employee has had a service of 18 years and 4 months, the service is considered as 18 years
• Pension received is lifelong and passes on to spouse and two children upon the employee’s death
• Employees can receive only pension from EPS and are eligible only after completion of 10 years of service and must have attained the age of 50 years for early pension and 58 years for regular pension

How does EPS Work? 

Only the employer will be able to contribute towards EPS, the employee will not be able to contribute directly. 8.33% of the employer’s contribution goes towards EPS, while the remaining 3.67% goes towards EPF. Therefore, in total, including the employee’s contribution, 15.67% goes towards EPF, and 8.33% towards EPS. 

Features of EPS Scheme 

The eligibility criteria for an employee to avail pension is mentioned below: 

• The individual must be a part of the EPF scheme to be eligible for EPS. 
• The employee does not contribute towards EPS, only the employer does. 
• Depending upon the employee’s age and duration of service, he/she will be able to withdraw the EPS amount, or it can be carried forward to their next job. 
• In case an individual changes jobs, only the EPF will be transferred to the new employer, the EPS will not be transferred. 
• EPS contributions stay with Employees’ Provident Fund Organisation (EPFO) if an employee changes his/her job. 

Availing the Pension

The employee pension under Employee Pension Scheme is calculated for 2 categories. One is for those who joined prior to 15th November 1995 and one for those joining post this date. Upon completion of 10 years of service, a person is eligible for the scheme certificate and can claim pension upon attaining the age of 58 or 50.

The employee can avail pension through superannuation where he/she has completed 10 years of service, is above the age of 58 and can continue working but no fresh EPF contributions will be made. They can take early pension where they have finished 10 years of service, attained age of 50 to 58 and are not working, if the employee is unfit to perform the job due to total or permanent disability and/or in case of death of the employee during or after service. In cases of death, the pension will be paid to spouse and 2 children below the age of 25

Who gets Pension through EPS?

All employees of organized sectors can avail pension, provided he or she contributes towards EPF. The Employee Pension Scheme or EPS is clubbed with the Employee Provident Fund (EPF). The Government has now raised the minimum pension amount in the EPS. A minimum of Rs.1,000 per month will now be granted as pension to employees of the organized sector. Earlier employees received a meagre pension of Rs.500, which made survival tough for the employees

What is the Contribution for EPS?

12.5% of the basic salary plus dearness allowance of the employee goes towards EPF, according to PF rules. Given below are the contribution details from the employee and the employer towards EPF, EDLIS and EPS.

Monthly Pension Calculation Before 1995

For employees who got jobs before 16th of November, 1995, the calculation of pension is a little complicated. The pension is calculated in two parts. Pension is calculated twice based on the period of employment. Once before 16/11/1995 and once after 16/11/1995. For calculation of pension before 16/11/1995, the following table can be used. In this table, pension is fixed based on the pay and period of service.

Employees retiring after this date get an additional pension for the past period. The above pension amount is enhanced by 8% for each subsequent year

Monthly Pension Calculation After 1995

The pension amount for those employed after 16th November, 1995 is calculated as follows:

Pension amount = (Pensionable salary * Service period)/70

In order to calculate the monthly pension in this case, following points need to be kept in mind:

• Pensionable salary is the average income of preceding 60 months. Most employers have a restriction on pension contribution to either Rs.1,250 or 8.33%, whichever is minimum. In these scenarios, the maximum pensionable salary would be Rs.15,000.
• Only the basic pay and dearness allowance is considered as salary.
• If an employee has completed over 20 years of service, then two years should be added as bonus in the equation. According to the rules, the bonus can be also applied for the service before 16/11/1995.
• The new rules make it mandatory for the pension to be more than Rs.1,000 per month.
• An employee is eligible for pension after completion of 10 years of service.

What happens to EPS When an Individual Changes Jobs? 

Introduced in 1995, the Employee Pension Scheme (EPS) helps employees working in an organised sector. Individuals who are under the Employees Provident Fund (EPF) scheme are eligible for EPS as well. Pension will be received by the employees until his/her death. Upon his/her death, the nominees will receive the pension. The employee and employer each contribute 12% of the employee’s salary towards EPF. Out of the 12% of the employer’s share, 8.33% is contributed towards EPS, subject to a maximum of Rs.1,250.  

Where does EPS go in case of Change of Jobs? 

Upon completion of the PF transfer request, which can be done on the EPFO portal, a lump sum amount will be transferred from the old PF account to the new one. However, there will be no addition in the EPS column. The passbook of your previous company will still retain the EPS amount. 

This helps in keeping a track on the number of years an individual has worked. In case, you have worked for 3 companies, each of the EPS contributions made by the employer will be retained in their respective passbooks.  

An employee is eligible for pension if he/she has completed 10 years of service. Pension can either start at 50 years or 58 years, depending on his or her choice. Pension will be lesser if you opt for it at 50 years compared to 58 years. An individual who is unemployed for more than 2 months will also be able to withdraw the EPS amount. 

Claiming Pension Money

• If you have scheme certificate of pension

Once the employee crosses the age of 50, he or she is entitled to get pension by Scheme Certificate. The employee is required to fill Form 10-D to avail regular pension. If the employee has more than one Scheme Certificate, he or she can directly go to the EPF office. This requires attestation of the employee’s Form 10-D by the bank manager.

• If you don’t have scheme certificate of pension

In case an employee has not completed 9.5 years of service, you must claim a pension refund. In order to do, you have to fill Form 10-C along with EPF withdrawal form and submit it through your employer.

EPS Withdrawal 

• If an individual has worked for less than 10 years 

An individual will be able to withdraw the EPS amount if he/she hasn’t completed 10 years of service. However, if the employee is currently working and has not finished 10 years of service, he/she will not be able to withdraw EPS amount. Only once the individual quits the company and before joining a new company can the EPS amount be withdrawn. 

He/she can withdraw the EPS amount on the EPFO portal by claiming Form 10C. The employee will need to have an active UAN and the KYC details must be linked to the UAN in order to withdraw the EPS amount online.  

An individual who has worked for less than 6 months can apply for a scheme certificate but will not be able to withdraw EPS as per the EPFO rules. Depending upon the number of years an individual has worked, only a percentage of the EPS amount can be withdrawn.  

• If an individual has worked for more than 10 years 

EPS withdrawal benefits will be stopped if the employee has completed more than 10 years of service. However, by filling Form 10C, the employee will be able to apply for a scheme certificate. 

Terms & Conditions of EPS

Some of the important terms and conditions of the Employees’ Pension Scheme are:

• An employee must complete a minimum of 10 years in service in order to avail pension through EPS.
• An employee can only avail pension after he or she turns 50 years old.
• An employee cannot have more than one EPF account.
• Government contribution towards EPS cannot be more than 1.16% of Rs.15,000. The maximum contribution from the government in a pension account is not more than Rs.174.
• The provision for commutation of EPF pension is not available any more.

Forms Related to EPS

There are various forms that need to be submitted to avail different benefits under EPS. They are:

EPS Scheme Certificate 

An individual can carry forward his/her EPS amount by applying for a scheme certificate. Form 10C gives you the option of either withdrawing your EPS amount or opting for a scheme certificate if you are changing your job.  

Each time an individual changes jobs and does not withdraw EPS, he/she can apply for the scheme certificate in order to accumulate the EPS amount. The EPFO adds the number of years to the scheme certificate. The individual can continue to do this until he/she reaches the age of 58 and then submit the scheme certificate to the EPFO in order to start getting pension.  

Therefore, an individual will have to work for an organisation that is a member of the EPFO to be eligible for EPF and EPS. By activating their Universal Account Number (UAN), he/she will be able to view the EPS and EPF balance on a regular basis. Withdrawing of EPS amount is also very easy if done online and is not time-consuming. For an individual who wants to be eligible for lifetime pension, he/she will have to work for a minimum of 10 years. However, the monthly contribution towards EPS (maximum of Rs.1,250) is very low when compared to EPF. 

FAQ’s

1. I am 54 years old and a member of the Family Pension Scheme. I have left my job on 13-12-93. I have already taken the withdrawal benefit. Am I eligible to join the new scheme now?

   Yes, you can join the new scheme, provided you refund the withdrawal benefit along with the interest. Thereafter, you will be entitled to receive pension after you turn 58 years old, if you complete a minimum of 10 years of contributory service by then.

2. Can a 58 year old Family Pension Scheme Member who has retired on 15-01-94, avail pension under the new scheme?

   Yes, if he or she has retired after reaching the age of 58 years, and between 01-04-93 and 15-11-95, the employee may join the new scheme after returning the withdrawal benefit plus interest. The member is then entitled to pension immediately, starting from the date of exit provided he has completed 10 years of eligible service.

3. Can a member of the Employees’ Pension Scheme change his or her nomination?

   Yes, a member of the EPS can change his or her nomination with the rules for such nomination. It simply means that the nominee should be a family member of the employee. Only if the employee has no family, then he or she can nominate anyone else according to their wish.

4. Under the EPS, is employee the only beneficiary of the fund?

   Benefit of the EPS is paid to the employee and in his or her absence, to the family of the employee.

5. Is it possible to receive pension earlier than the age of maturity of the EPS?

   Yes, you may receive pension on turning 50, however pension payable from that age will be reduced by 3% for every year falling short of 58.

6. How many years of service should a member of EPS complete in service in order to be eligible for receiving pension?

   An employee is entitled to receive pension only after completion of minimum 10 years of eligible service.