Employees’ Pension Scheme: Monthly Pension Benefits, Eligibility Rules, and Key Conditions Explained

The Employees’ Pension Scheme (EPS) is an integral part of the Employees’ Provident Fund (EPF), designed to offer long-term financial security to private-sector employees after retirement. While most employees are familiar with EPF contributions and the lump sum received at retirement, many remain unaware that a portion of the employer’s monthly contribution goes directly into EPS. This amount forms the basis of the employee’s monthly pension once they retire. Here is a detailed look at the rules, eligibility conditions, contribution structure, and pension calculation under the EPS framework.

What Is EPS and Who Is Eligible?

EPS was introduced in the mid-1990s to ensure that private-sector employees receive a steady pension after retirement. Any employee who joined EPF during or after this period automatically becomes a member of the EPS.

Every month, employees contribute 12% of their basic salary to their EPF account. Employers contribute another 12%, but this contribution is split:

• A part goes to the employee’s EPF account.

• 8.33% of the employee’s wages goes to the EPS account.

This EPS contribution accumulates over the years and converts into a monthly pension after retirement—subject to certain conditions.

Conditions for Receiving Monthly Pension Under EPS

EPS provides a monthly pension only when specific eligibility rules are met. These include:

1. Minimum 10 Years of Pensionable Service

To qualify for a pension, an employee must complete at least 10 years of pensionable service. If the employee has worked for fewer than 10 years, they are not eligible for a pension. Instead, the accumulated EPS amount is paid to them as a one-time withdrawal benefit at retirement.

2. Pension Begins at Age 58

The standard retirement age under EPS is 58 years. Only after turning 58 does the employee start receiving the monthly pension. Early pension is possible from age 50, but the pension amount is reduced due to early withdrawal.

3. Automatic Membership for EPF Contributors

Anyone contributing to EPF post-1995 automatically becomes an EPS member. There is no separate enrollment required.

These conditions ensure that pension benefits are extended primarily to long-term employees who contribute consistently to the EPF system.

How EPS Contribution Works

Every month, employers contribute an amount equal to 12% of the employee’s basic salary toward EPF-related benefits. Out of this:

• 8.33% goes toward EPS, calculated on a capped wage ceiling (currently ₹15,000).

• The remaining amount goes to the employee’s EPF account.

This distribution ensures that the employee receives both a retirement corpus (EPF) and a lifelong pension (EPS). The EPF balance earns annual interest, whereas the EPS amount does not earn interest but is used exclusively to calculate pension payouts.

How EPS Pension Is Calculated: The Formula

EPS pension is calculated using a fixed formula:

Pension = (Pensionable Salary × Pensionable Service) ÷ 70

Where:

• Pensionable Salary = Average of the last 60 months’ salary on which EPS contribution was made

• Pensionable Service = Total years of service under EPS

Example:

If your pensionable salary is ₹15,000 and you have completed 30 years of pensionable service, then:

Pension = (15,000 × 30) ÷ 70 ≈ ₹6,428 per month

This becomes your lifetime monthly pension after retirement at age 58.

Impact of PF Withdrawal on EPS Pension Eligibility

Many private-sector employees frequently switch jobs or take career breaks. In such cases, employees often withdraw their EPF balance. However, withdrawing PF before completing 10 years of service has a major consequence:

• If you withdraw your PF before completing 10 years of pensionable service, you become ineligible for EPS pension.

Employees changing jobs should instead transfer their PF to the new employer to ensure continuity of EPS service.

Why Understanding EPS Is Important

EPS is one of the few schemes in India that guarantees a lifelong pension, providing significant support during retirement. Knowing its rules helps employees:

• Plan long-term retirement goals

• Avoid mistakes like premature PF withdrawal

• Understand their contribution structure and benefits

• Ensure continuity of service to qualify for pension

The scheme ensures that workers in the private sector have a dependable monthly income post-retirement, offering stability at a stage when it matters most.