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Sunday, March 31, 2013

How Much Pension Will I Get Through the Employee Pension Scheme (EPS)?


In one of the recent articles we had taken a detailed look at Employee Provident Fund or EPF. One of the components of this EPF is the Employee Pension Scheme or EPS. We covered what the EPS is and what it is supposed to do. But, we never talked about how much pension we might get after we retire. The purpose of this short article is to give you a relistic idea of how much pension you may get post retirement through this EPS Scheme.

To Refresh our Memory - What is Employee Pension Scheme?

The EPS is a saving scheme wherein a small sum of money is accumulated on a monthly basis over the duration of employment so that, it can help the employee receive a pension after retirement.

When can one start Receiving Pension from EPS?

An employee can start receiving pension under EPS only after rendering a minimum service of 10 years and attaining the age of 58 or 50 years.

Points to Remember:

1. No pension is payable before the age of 50 years.
2. Early pension — that is an employee receiving after completing 50 years of age but before 58 years is subject to a reducing factor @ 4% for every year falling short of 58 years. In case of death / disablement, the above restriction is not applicable.
3. The pension amount is payable to the eligible subscriber till he survives. On the death of the employee, members of his family—whom he has nominated—are entitled for the pension.

What Happens if I Resign before completing 10 years of service?

If you resign before completing 9 years and 6 months of service, you get the “withdrawal benefit” which depends on your monthly salary and the no. of years of service. EPS always rounds up the no. of years. So, if you worked for 4 years and 7 months, you will be considered as 5 years. You can opt for the withdrawal option only if you are less than 50 years old.

No. of Years of ServiceMultiplication Factor
11.02
21.99
32.98
43.99
55.02
66.07
77.13
88.22
99.33
Note: The amount you will receive is not based on the balance in your EPS corpus. It is based on your basic salary and no. of years of service that can be considered after rounding up as per the table above.

For Ex: An employee exits from employment after 3 years and 8 months of service with a basic salary on exit Rs. 5,000 - They will get Rs. 19,250 (5000 * 3.99)

If you have crossed the 50 year mark or the 10 years of service then this withdrawal option is not available for you.

What can I do if I have crossed the 10 years of Service?

If total service of employee is more than 9.5 years and age of employee is less than 50 years of age, they can only claim a scheme certificate. They can add services at different companies to calculate total service and can get pension from the age of 50 years onwards. If they have the scheme certificate for all services, they may apply directly at EPF office which covers the area. They needs to fill up Form 10-D, get form attested by a Nationalized Bank manager with photo and other required documents which is mentioned in the Form-10D to avail the Pension benefit.

So, If you are switching jobs you can get this Scheme Certificate and avail the pension option when you retire.

What is the Maximum Pension One Can Get from EPS?

Under EPS, the monthly pension is decided on the basis of ‘pensionable service’ and ‘pensionable salary’.

Here:

Pensionable Salary = Last Drawn Basic Monthly Salary
Pensionable Service = No. of years of Service you put in as an employee of your company

The formula to calculate pension is:

Monthly pension = (Pensionable salary X Pensionable service) ÷ 70

Did you read the article on EPF carefully? Did you note that the upper limit on EPS contribution is based on a Monthly Basic Salary of Rs. 6,500/-?

So, if the amount contributed every month is on a salary of Rs. 6,500/- what do you think will be considered as Pensionable Salary for the above formula???

As Expected, the pension is calculated on a monthly salary of Rs. 6,500/-

So if you have worked for say 35 years, your monthly pension will come to Rs. 3250

(6500 * 35) / 70 = 3250

Note: Rs. 3,250 is the maximum pension one can get per month through the EPS Scheme.

Are you disappointed after seeing this number?

Unfortunately, So was I.

This amount is too less. This amount wouldnt be enough for an individual in todays cost of living. Imagine the cost of living after 25 or 30 years when we retire?

To Make Matters Worse - If you invest this same Rs. 541 in a recurring deposit with a reputed Bank that offers compound Interest (That is compounded on monthly basis) at 8% interest rate per annum for 35 years, you would get Rs. 12,40,990 as maturity value.

If you purchase an Annuity Plan (A Fancy Term for a product that will pay you monthly pension) that offers 7% returns per annum, the monthly pension you will get is approximately Rs. 7,200/-

As you can see - The amount you will get is almost double of what pension you may get through EPS.

Sadly, all these limits and schemes were formulated in the 1980's when this Rs. 6,500/- per month was considered an extravagant salary that people yearned for. It is high time the Government of India woke up to the current state of affairs and revised all these numbers that make no sense today. The purpose of all these schemes is to help the Salaried Class of India survive when they retire after 25-30 years of service. Unless, these numbers are revised, there is practically no use in contributing to these schemes whatsoever...

My Thoughts on this:

Though the idea based on which these schemes were formulated need to be commended, they need to be tweaked in order to be effective. I would strongly suggest you plan for your retirement meticulously and ensure that you have a happy retirement. There have been multiple articles in our blog that cover Retirement Planning. You can visit the Retirement Planning Home Page of our blog by Clicking Here

Happy Retirement!!!


51 comments:

  1. how to discontinue employee's pension scheme please give an idea.

    ReplyDelete
    Replies
    1. Hi,
      EPS is part of the standard retirement benefits most company's in India offer. If you dont want it, talk to your employer and ask them to contribute that part into some other component of your salary.

      Anand

      Delete
  2. Hi Anand, Is it true that my nominee can not get back my EPS contribution amount after my death.Also I was told that 1/3 rd commutation benefit is also withdrawn.Please clarify.Thanks for your valuable advice and comments regarding EPF.
    Thanks & regards,
    Suganthiah.D.

    ReplyDelete
    Replies
    1. Suganthiah,
      As far as I know, the nominee (usually the spouse) gets the pension in place of the husband/wife until they are alive. However, all this is under the assumption that you completed at least 10 years of consecutive service where EPS was contributed in your name.

      I havent heard of this 1/3rd commutation benefit. Could you tell me what this is so that I can check if it is available or withdrawn?

      Regards
      Anand

      Delete
    2. Mr.Anand, 9. Option for commutation of 1/3 of Quantum YES NO
      ( Pension (If option is for lesser ) commutation indicate
      the quantum )


      10. Option for Return of Capital ( Please refer serial ______ ______
      Number 10 of INSTRUCTIONS ) YES NO
      [ Put a tick ( ) ]
      if yes , indicate your choice of alternative

      This is from form 10 D.Whether the two benefits (1/3 commutation, return of capital) are withdrawn or not?
      Thanks & regards,

      Delete
    3. Hi Anonymous - Why are you filing form 10D? For EPS withdrawal I think it is form 10C and for EPF withdrawal it is form 19

      Delete
    4. Mr.Anand,
      After my and spouse death, will my nominee get the accumulated EPS Corpus.
      Thanks&regards,

      Delete
  3. Hi Anand, my query that,is there any procedure to withdraw corpus amount deposited in my EPS? If yes, then plz reply by when and how ?

    ReplyDelete
    Replies
    1. Anonymous,
      EPS withdrawal can be done via filling in the requisite forms and can be submitted along with your PF withdrawal application. Form 19 is for EPF withdrawal and Form 10C is for EPS (Pension) withdrawal

      The EPS can be withdrawn when you resign or when you retire.

      Anand

      Delete
  4. Hello Anand,
    I read through your blog entry here on PF and found it interesting and useful to an extent of enriching my knowledge. however, my query is that. I have completed 10 years of continuous service (5 years in company A and 5 years in company B and I am sure I did ask company A to transfer the PF to company B). Now that the pension amount will be way less as you calculated, I am hoping I can withdraw all of the money that is available and invest in some recurring deposit. But seeing this statement "If total service of employee is more than 9.5 years and age of employee is less than 50 years of age, they can only claim a scheme certificate." I am totally depressed. Do correct my understanding here. Is it true I cannot get that cash into my bank account ?

    ReplyDelete
    Replies
    1. Hi Regi - yes, it is easy to get depressed after seeing the possible pension you may get after retirement but there is not much we can do other than actually plan properly and save well for our retirement. The articles in the retirement planning series will help you with that - http://anandvijayakumar.blogspot.com/p/retirement-planning.html

      Coming back to topic - No, there is no way you can get cash from this EPS account into your bank account if you are less than 50 years old because you have completed the 10 year service mark as per EPS. This scheme certificate can be used to claim the pension after you retire or continue with EPS in your next job in such cases.

      Anand

      Delete
  5. I had resigned from my currnent company 2 months back and I am not planning to join any company as of now. I contributed to PF for 8 years. Can I withdraw my EPS (Employee Pension Scheme) without withdrawing EPF. I would like to withdraw my EPF amount after 1 year. Thanks

    ReplyDelete
    Replies
    1. Ramesh - If you are not planning on joining any company now, you must submit the withdrawal for both EPS and EPF right away. Plus I dont think you can withdraw just the EPS when the EPF is not closed yet.

      Anand

      Delete
  6. Is there any website where I can check my accumulation on the EPS.

    ReplyDelete
    Replies
    1. No. There is no such website as of now

      Delete
    2. you can check your as wel as employees epf contribution on website.

      http://www.epfindia.com/ClaimStatus_New.html

      Delete
  7. Hi Anand,

    I have submitted PF withdraw form 19&10C first time verified by my last company(i have worked for 1.6yrs) HR and after submitted by them to PF office it gets rejected.
    The Rejection letter received and the reason was: "Pension Contribution not deducted".
    Could you please let me know if any info. was missing or wrong filled by me...

    Thanks,
    Sachin

    ReplyDelete
    Replies
    1. Sachin - It looks like your employer did not open an EPS Account on your name and make pension contributions. That is why your withdrawal got rejected. Reach out to your old employer and find out why EPS was not contributed.

      Alternately - There could've been a name mismatch in the forms submitted which is why the EPF Office concluded that there is no EPS Account in your name. If that is the case, your employer has to submit a request to update the particulars to reflect your correct info and then resubmit a fresh withdrawal application.

      Anand

      Delete
  8. Hi Anand,

    First of all thanks for this useful information.
    I have query,

    I have changed two companies so far and currently in 3rd company. As an obedient citizen, I got PF transferred every time I changed company. So far I have completed 8 Yrs service.
    I am planning to switch in couple of months, do you suggest this time to withdraw from EPF and EPS looking on loss at EPS.
    Thanks again.

    Regards,

    ReplyDelete
    Replies
    1. Anonymous - When you switch jobs, you need to get the PF Account transferred. That is the law and good that you have followed it so far.

      If you do the next switch, withdrawal may sound like a promising option but that is only allowed if you are going to take a break of at least 3 months. Many companies allow withdrawal when you resign but that is not correct. EPS may seem like a very small amount but I would suggest you continue the transfer because it will give your PF Account corps an opportunity to grow to be sizeable.

      Anand

      Delete
  9. Hi Anand,
    My father worked in Arunachal for 14 years and then resigned. He then joined another State Univ in and worked for 18 years and finally got retired. He didn't collect the pension from Arunachal for all these years. His dilema is whether he can recieve pension from both the States.

    Kindly reply.Waiting in anticipation..

    Thanks.

    ReplyDelete
    Replies
    1. MNZ - Yes, as he completed 14 years while in Arunachal, he would be eligible for the pension however I dont think he can draw two pensions. Usually when you move jobs, you transfer your PF as well as EPS Accounts so that you can receive one pension once you retire. In this case since the transfer did not happen, I would suggest you/your dad check out the nearest regional EPF office and inquire if it is possible.

      Delete
  10. Hi Anand, I have a doubt,if my basic salary is Rs 16000...as per the upper limit rule...will my pension be calculated at Rs 6500..

    ReplyDelete
    Replies
    1. It depends on your company Anonymous. Most companies will only consider 6500 because that is what the government mandates and doing so for a higher amount would be costlier for them.

      Delete
  11. Hi Anand, I have 4 years of exp and worked for two companies. From my 1st company i transferred PF amount to the second company. Now i resigned from my 2nd company as well. Now i want to close my PF account and get the amount. I have submitted PF withdrawal forms to my 2nd Company. Now i should get (Employee Share + Employer Share + Pension Fund) right. Please clarify on this. My friends are saying that i will get only (Employee Share + Employer Share), if i close now. Please clarify and do the needful

    ReplyDelete
    Replies
    1. Ezhil - When you withdraw - two forms need to be submitted. One for EPF and one for EPS. if both are submitted and approved you will get both. make sure to submit both forms.

      Delete
  12. HI Anand,
    Thanks for the info provided, but i still have some confusion. You see i worked for 4.7 years in company A and currently work in company B. I got my EPF transferred, now the confusion i have is do i need to submit the 10 C form to get the EPS transfer done or is it all taken care in the EPF transfer itself? i see there is a Scheme Certificate thing mentioned, is it transferred to my current organization along with the PF transfer or do i need to do anything on this..

    ReplyDelete
    Replies
    1. Usually the EPS benefits get transferred when your PF gets transferred. However, to be 100% sure talk to your present employer and confirm that it got transferred. Else, you will need to initiate a fresh request for the EPS

      Delete
  13. Hello Anand,

    I want to confirm about my EPS (pension) amount has transferred from previous company or not. PF amount alone has transferred to present company. but I applied for both PF and pension. how can I know the total pension amount with pension account number.

    Thanks for your answer.

    Krishna

    ReplyDelete
    Replies
    1. Usually when PF Transfer completes the EPS transfer also completes. your employer will be able to confirm if the transfer was successful

      Delete
  14. hi, My friend has two PF accounts PF1 (5 months contribution in EPS) and PF2 (5 months contribution in EPS). Currently he is not working anywhere.

    Question: Can he transfer PF1 to PF2 to avail the withdrawal of EPS amount using form 10C.

    ReplyDelete
    Replies
    1. If your friend is not working anywhere now, the transfer cannot be done. But, your friend cannot withdraw from both those accounts because they havent completed the minimum 6 months criteria. Sorry.

      Delete
  15. Hi Anand. thnaks for answering all the question.. much appreciated.

    i have changed the company around 3 years ago. when i see my old PF account statement in epfo site it gave me below three values

    Employee Share : 50016
    Employer Share : 29432
    Pension Fund : 16771

    that total comes to around 96219 /-

    now i have requested transfer the fund to my new PF account and i just got the SMS from epfo that settled amount 86201.00 has been sent to new account.

    i am not able to understand why this is less. there is almost gap of 10000/-

    Thank you very much
    Kartik

    ReplyDelete
    Replies
    1. Kartik - As i have said in this article, EPS money is based on your no. of years of completed service. It looks like you got Employer + employee share of EPF plus Interest.

      When you transfer eps, you get the no. of years of exp transferred, not the money.

      Delete
  16. Hi Anand VijayaKumar,

    First of all I would like to appreciate you for running this blog which is so informative.

    I would like to know how much EPS amount i can get as I am relieving from my present company by Dec month end.

    Details are as follows,

    Joining Date - 18-06-2007
    Relieving Date: 31-12-2014
    Monthly Basic Salary: 13800

    Please let me know how much EPS amount i can get once i submit the papers after 2 months of my relieving.

    Please note that the reason I am asking this doubt is recently EPFO has changed the Maximum pensionable salary from 6500 to 15000 w.e.f. September 2014, will it be of effect on my withdrawal. If yes, I could get more amount of EPS than earlier. Right??

    PLease reply, Thanks in advance

    ReplyDelete
    Replies
    1. Hi,
      EPS will only be paid out (as a monthly pension) after you complete 10 full years of service + reach the pensionable age. Not sure how old you are but if you are less than 60 years old as of dec 2014 when you get relieved, I dont think you will get any pension.

      If your net experience is less than 10 years, you can withdraw your EPS corpus which is usually a multiple of your last drawn basic salary corresponding to the no. of years of completed service.

      Delete
    2. Mr. Anand,

      My total experience by the time I relieve in DEC - 14 is exactly 7 years 6 months and I am 28 years old FYI.

      Can you tell me how much EPS corpus I will be getting if I withdraw. My basic salary is exactly 13800.

      See, I could understand that EPS corpus is a multiple of your last drawn basic salary corresponding to the no. of years of completed service, but my doubt is earlier if your salary is greater than the Salary cap fixed by EPFO i.e. 6500, you would be getting only

      EPF corpus withdrawal = Multiple corresponding to the years of service X 6500 (since 13800 > 6500 (Cap for salary as per earlier rules)), right?

      Now, EPFO has changed the monthly salary cap to 15000. That means as per the new rule I should be getting,

      EPF corpus = multiple corresponding to the years of service X 13800 (since 13800 < 15000 (new fixed cap for salary)).

      Please explain.

      Thanks in Advance

      Regards,

      Sravan

      Delete
    3. Sravan - There is no concrete news/release from the govt about the hike in basic salary for EPS calculation. IT has been made official only for EPF. Best case scenario - you will get 13800 * the multiplying factor for your exp. Worst case scenario you will get 6500 * multiplying factor.

      Ideally it should be 13800 ** because your basic salary is lower than the 15k limit. However, there could be a catch here - the govt can declare that this 15000 is only for full-term completed pension via EPS and not early withdrawals.

      As this situation is new - i am not able to help much. Maybe you could come back and post your feedback on how much you exactly got so that I can learn from your case and help out others in future.

      Delete
  17. From September 2014 onwards EPS deductions have increased to 1250 per month i.e. 15000 a year. will withdrawal amount be calculated based on this or 6500?

    ReplyDelete
    Replies
    1. It will be prorated based on the no. of years contributions happened with either amount. But, dont worry. for the years it was deducted for 15000 rupees, you wont lose out

      Delete
  18. Hi Vijay,

    can you please calrify if my below understanding is correct ,When you transfer your old EPF/EPS account from X comapany to new EPF/EPS account in Y company

    EPF
    1) only (Employer share+Employee share and interest) is transferred to new EPF account in Y comapny

    EPS
    1) Only you get the no. of years of exp transferred, not the money to your New EPS account in Y comapany.

    if yes how to make sure that the current EPS account in Y comapny has the information of no. of years of exp transferred from previous X comapny's EPS account.



    When i tansferred MY PF from X to Y comapny. In the PF passbook for Y comapny I found only the below entries for PF transfer items
    1) transfer in Employee share amount from X comapny
    2)tansfer in Employer share amount from X comapny
    3)transfer in interest amount from X coampny

    4) Transfer in pension scheme amount was mentioned '0' ( because the no. of years of exp transferred, not the money to your New EPS account) is this correct?

    Thanks
    Sumeet kumar

    ReplyDelete
    Replies
    1. Yes this is correct. EPS money does not get transferred. Only the No. of years of experience gets transferred.

      Delete
    2. Hi Vijay,

      Thanks for the clarification. One part in the above question still remianed unanswered.

      When you transfer EPF/EPS account from X comapny to Y comapny. how to make sure that the current EPS account in Y comapny has the information of no. of years of exp transferred from previous X comapny's EPS account.


      Thanks

      Sumeet Kumar

      Delete
    3. As you can see transfer amount is mentioned as 0, i believe your no. of years would have gotten transferred. If in doubt, you can ask your employer to check and double confirm if the EPS Transfer was also successful

      Delete
  19. Hi anand,

    I worked for an organization A for 4 years exact and now I moved to new organization B. Here I have two scenarios
    A) If I withdrawn the EPF or Pf related money , I believe a tax for x amount PF per month*12(months)*4(years) will be deducted + the interest for the same will also be deducted. Am I correct ?
    B) lets say I have transferred the account to new organization PF contribution to continue. I had continued for another 1 year + and here my question is that will I be able to withdraw the PF money as I completed 5 years (where I will be still working with orgB) with out any taxing ?

    Please let me your inputs in either withdrawing the Pf money now or better to withdrawn after 5 years(if withdrawal possible still continuing the same org) ..!

    ReplyDelete
    Replies
    1. A. No. The entire PF Amount withdrawn (the amount that got accumulated over the past 4 years) will be added to your taxable income for this year and income tax will be deducted.

      B. No Again. You can only withdraw PF when you quit a job and stay jobless for at least 3 months. You cannot withdraw while still employed.

      In this scenario, since you are going to join job B, you cannot withdraw your PF.

      Delete
  20. (---Note: The amount you will receive is not based on the balance in your EPS corpus. It is based on your basic salary and no. of years of service that can be considered after rounding up as per the table above.)

    At 9th year of withdrawal of EPS , assuming the basic salary is 50,000 :- the EPS withdrawal amount will be 50000X9.33 = 4,66,500. Is it right calculation?

    ReplyDelete
    Replies
    1. For withdrawal - yes. But just note that if you submit a request after completing 9 years and 6 months, the years is counted as 10 and you cannot withdraw

      Delete
  21. Hi,
    I was an employee of an MNC from January 2007 to October 2016 (9 years 9 months). I was deputed for discontinuous service in US under the same employer for 4 years 1 month (March 2012 to July 2012 and December 2012 to October 2016). During my service in US there were no contributions made to Provident Fund. My contributory period is 5 years and 8 months. I resigned from the MNC in October 2016 to another company in US and am not planning to move to India soon.
    Can I get EPS portion withdrawn citing employment/settlement abroad and not opt for scheme certificate even though I was a member of EPFO for almost 10 years. What should be the supporting documentation that I need to furnish to get the EPS withdrawn without scheme certificate in this case?
    Anticipating valuable feedback. Thanks.

    ReplyDelete
    Replies
    1. Hi - You cannot withdraw just the EPS. You need to get both EPF and EPS withdrawn if you are not employed in India any more

      Delete

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