EPF Members’ Guide: Pension Formula, Family Benefits, and What the ₹15,000 Salary Cap Really Means

For millions of salaried employees in India, the Employees’ Provident Fund (EPF) and the Employees’ Pension Scheme (EPS) form an important part of long-term financial security. While EPF focuses on building a retirement corpus through monthly contributions from employees and employers, EPS is designed to provide a fixed pension after retirement. Understanding how your pension is calculated, who receives benefits, and how the salary cap works can help you plan more effectively for the future.

How the Employees’ Pension Scheme (EPS) Works

If you are an EPF member, your employer contributes a portion of your salary to the Employees’ Pension Scheme. EPS is meant specifically for salaried individuals and aims to offer a stable monthly income after you retire. To qualify for monthly pension benefits, you must complete at least 10 years of pensionable service. Full pension begins when you turn 58, although you can choose early pension from age 50, with reduced payouts due to a longer payout period.

EPS is widely considered an essential safety net, particularly for individuals who do not have large retirement savings. However, understanding how the pension is computed is essential, as the amount is often lower than what many expect.

How Is the EPS Monthly Pension Calculated?

EPS pension is calculated using a simple formula:

Monthly Pension = (Pensionable Salary × Pensionable Service) ÷ 70

1. Pensionable Salary

This is the average of your Basic Pay + DA for the last 60 months of service. However, most members face a significant limitation:
EPS calculations are capped at a salary of ₹15,000 per month, regardless of how much you actually earn.

2. Pensionable Service

This includes the total years of service you have completed under EPS. Service years are rounded off as per EPS rules.

Example Calculation

Suppose your pensionable salary is ₹15,000 and you have completed 25 years of service:

(₹15,000 × 25) ÷ 70 = ₹5,357 per month

If you choose early pension (before 58), this amount reduces based on the applicable reduction factors.

Family Pension: What Happens if the Member Passes Away?

EPS includes built-in benefits for dependents. If a member dies during service or after retirement:

1. Widow Pension

The spouse receives monthly widow pension, subject to rules and minimum limits.

2. Children Pension

Up to two children can receive monthly pension until they reach a defined age, usually 25 years.

3. Orphan Pension

In the absence of a spouse, eligible children receive enhanced pension benefits.

These provisions ensure that families continue to get financial support even if the primary earner is no longer alive.

Why Is There a ₹15,000 Salary Cap?

The ₹15,000 salary ceiling is one of the most debated aspects of EPS. Here's what it means:

• Even if your monthly salary is ₹40,000, ₹70,000, or higher, EPS contributions and pension calculations consider only ₹15,000.

• This significantly limits the final pension amount.

• Some older members who opted for the “higher pension” scheme based on actual salary (before EPFO changed rules) may have a higher pensionable salary.

This cap is the main reason why EPS pension amounts are often quite modest.

What If You Leave the Job Before Completing 10 Years?

If you exit employment before completing 10 years of pensionable service, you do not qualify for a monthly pension. However, you have two options:

1. Withdrawal Benefit

You can withdraw the EPS balance based on a pre-defined table that depends on your total years of service.

2. Carry Forward the Service

You can keep your EPF/EPS account active and transfer it to your next employer. The years of service continue to accumulate, helping you eventually qualify for a pension.

Financial planners recommend transferring EPS instead of withdrawing, especially for long-term retirement benefits.

Should You Depend Only on EPS for Retirement?

While EPS provides a guaranteed pension, the amount is comparatively low due to the salary cap and formula restrictions. Therefore, relying solely on EPS is not advisable. Combining EPF savings with investments such as NPS, mutual funds, or PPF offers far stronger retirement security.