Employee Pension Scheme (EPS): Benefits, Eligibility, & How It Works

An employee pension scheme is an Employees Provident Fund Organisation (EPFO) managed scheme that acts as a retirement savings plan for the employees. All the are enrolled in this scheme on their own when they an organisation. It is a government-backed scheme that provides employeeswith financial security after their retirement. Under this plan, both employer & employee contribute 12% of the employee’s salary, i.e. basic salary & dearness allowance.

It plays a vital role in Retirement Planning further ensuring a regular income for the who deposited funds into this scheme during their job.

Both old & new employees can avail of this scheme once they have attained the age of 58 years.

Eligibility Criteria

Provided are the eligibility parameters to be met to invest in the Employee Pension Scheme:

• An employee must have worked for a minimum of 10 years in his service.
• The retirement age of an employee is 58 years.
• The funds deposited can be withdrawn at a reduced rate once the age of 50 is crossed.
• If an employee has completed 6 months of service but has not completed 10 years of service, he/she can withdraw the funds from the EPS in case of being employed for more than 2 months.
• Family are also eligible to claim pension benefits in case of a member’s death during his service.
• If an employee becomes totally & permanently disabled, he will receive a monthly pension even if the pensionable period is not served completely. He will be entitled to this pension amount for a lifetime.

Key Considerations to be kept in Mind about EPS

• The employer makes contributions towards the Employee’s Pension Scheme (EPS) .
• The employer contributes 8.33% of the employee’s salary towards the Employee’s Pension Scheme (EPS) .
• The employee’s salary includes basic pay plus dearness allowances, retention allowances, &issible cash value of food concessions.
• The employer must contribute the amount within 15 days of the closure of every month to the Employee’s Pension Fund.
• The employer will bear all the applicable istrative costs.
• The contribution is to be made for all the employees working directly for the employer or under a contract.
• To avail of these benefits, the minimum service period is 10 years.
• An employee can withdraw this amount on being unemployed for more than two months, even if the period of 10 years is not met, but more than 6 months have ed.
• The retirement age of the employee under this scheme is 58 years.
• The tenure of an employee comes to an end once he reaches the age of 58 years or starts taking the reduced pension at the age of 50 years.
• The Central Government also contributes 1.16% of the employee’s salary & credits the same towards the Employee’s Pension Fund.
• If an employee becomes totally & permanently disabled during his service, the employer should deposit the funds in the employee’s EPS for atleast a month to maintain eligibility for a life.

How to Calculate Pension under EPS

To get an estimate of the pension amount receivable under EPS, one can use a Retirement Calculator using two main methods, namely:

1. Pensionable Salary

This means an average monthly salary that is withdrawn in the previous year by the member before making an exit from the plan. The benefit would be provided irrespective of the non-contributory days.

2. Pensionable Service

It is the actual serving period of the member. To calculate this period, one has to combine all the services rendered by the employee to different organisations. Member has to produce EPS certificate to the new employer whenever he/ she changes the job.

Types of Pension

Provided are the different types of pensions offered under the EPS scheme:

• Widow Pension

Under this type of pension, the member’s widow will receive the pension amount till her death or remarriage. In the case of more than one widow, the eldest widow will receive the pension.

• Child Pension

In case of a member’s death, the surviving children of the family also become eligible for a “Child Pension” in addition to a “Widow Pension”.

• Orphan Pension

In case the member dies,& his widow also does not survive, his children will be entitled to receive an orphan pension of 75% of the value of the widow’s pension on a monthly basis. A maximum of two surviving children will receive this pension from eldest to youngest.

• Reduced Pension

can make an early withdrawal of funds once a period of 10 years has been completed. Also, must have reached the age of 50 years, but not 58 years, at a rate of 4% per year, & the pension amount is reduced.

Types of Pension Forms under EPS

Provided is the list of forms that are to be submitted to avail of the EPS benefits:

Conclusion

Hence, to conclude, this scheme offers a fixed monthly income to the once they attain the age of 58 years or as early as 50 years, securing their financial future. One should clearly understand & have complete knowledge about the scheme for the purpose of retirement planning. To get an estimate of the amount that would be receivable post-retirement & have a secure retirement journey, a member can take the help of a retirement calculator also.