EPS Calculation: Salary limit at ₹25,000, pension increased by 65%; see the calculation..
The government has increased the wage ceiling under the Employees' Provident Fund (EPF) and the Employees' Pension Scheme (EPS). The wage limit has been raised from ₹15,000 to ₹25,000. This decision provides relief to approximately 5.1 million (51 lakh) employees. Most importantly, a significant aspect of this decision concerns the monthly pension (EPS pension) you will receive after retirement. With the new wage ceiling of ₹25,000 in effect, your pension could see an increase of more than 65%.
You might be wondering how this new rule will impact your salary and pension. We will clarify this for you through a calculation.
What is the formula determined by the EPFO?
Monthly Pension = (Pensionable Salary × Pensionable Service) ÷ 70
Pensionable Salary: The government sets an upper limit (ceiling) on this. Previously, it was ₹15,000, which has now been increased to ₹25,000.
Pensionable Service: This refers to the number of years you have been employed. (According to the rules, if you have completed 20 years or more of service, you receive an additional 'service bonus' of 2 years.)
Employer's Contribution
12% of your basic salary goes into the PF, and the company contributes an equal amount (12%). Of the company's contribution, 8.33% goes into the EPS fund, while the remaining 3.67% goes into the EPF account.
Understand the impact through a calculation:
If your basic salary is ₹25,000 or more, let’s look at the significant difference in your monthly pension when comparing the old ceiling of ₹15,000 with the new ceiling of ₹25,000. This calculation is based on a service period of 25 years.
Service Years | Bonus Years | Calculated Years | Pension at Old Ceiling (₹15,000) | Pension at New Ceiling (₹25,000) | Monthly Pension Increase
25 Years | 2+ Years | 27 Years | ₹5,786 | ₹9,643 | PLUS ₹3,857
Note: For those with more than 20 years of service, 2 years have been added as 'bonus service years' for pension calculation.
The calculation clearly shows that with a 25-year service period, the new wage ceiling limit will entitle you to a guaranteed monthly pension of approximately ₹9,643. In contrast, under the old limit, your pension would have been approximately ₹5,786. In other words, the new rule results in an increase of ₹3,857 in your pension.
