Pension Scheme: For a long time, a discussion has been going on to increase the highest limit of investment under the Employee Pension Scheme (EPS). The retirement fund body EPFO is discussing a pension product that will cater to the workers in the organised sector with basic wages of more than ₹15,000 a month.
This new scheme or update will cover the workers who do not fit the eligibility criteria for Employees Pension Scheme 1995 (EPS-95). It only covers workers who have a basic salary ranging up to ₹15,000 a month.
The Demand For Higher Pension
A February report by Press Trust of India talks about the demand for higher pensions. According to a source of PTI, “There has been a demand for higher pension on higher contributions among the members of the Employee’s Provident Fund Organisation (EPFO). Thus, it is under active consideration to bring out a new pension product or scheme for those whose monthly basic wage is more than ₹15,000.”
The reason for this demand was that no matter what your salary was, the maximum amount of pension would be ₹15,000. Last year on August 12, the Supreme Court of India adjourned the hearing on several petitions filed by the Union of India and the Employees’ Provident Fund Organisation. It said that the pensionable amount cannot be capped at ₹15,000.
Eligibility Criteria Under EPS
If you want to avail of benefits under the Employees’ Pension Scheme,
- You must be a member of EPFO
- You must be 58-years-old
- You should have completed at least 10 years in service
- An individual can defer pension for two years or until they turn 60. After that, you will get a pension with an added rate of 4% annually.
- An individual can also withdraw pension amount at a less rate when they are 50-years-old.
Current Rules Of EPS
When you start a job, you become a member of EPF. It automatically makes you a member of EPS. Every employee contributes 12% of their salary to the EPF, and your company also contributes the same amount.
A part of this contribution also goes to the EPS fund. Since the maximum pension salary amount is ₹15,000, that makes every month's maximum pension share equals ₹1,250 (8.33% of 15000).
Hence, when an employee retires, the maximum salary for calculating the pension of any employee is ₹15,000. Thus, the calculation concludes that the maximum pension an employee would get under EPS is only ₹7,500.
Pension Calculation Formula Under EPS
If an individual started to contribute to the EPS before September 1, 2014, then ₹6,500 will be the maximum cap on the monthly salary (how to ask for salary raise?) for the pension contribution. On the other hand, if an individual started contributing after the said date, the cap on salary will be ₹15,000.
Monthly Pension = [Pensionable Salary * Years Of EPS Contribution]/70
At this place, we are assuming that the employee started making contributions to the EPS after September 1, 2014. Hence, the total contribution would amount to ₹15,000.
Now suppose the individual has worked for about 30 years, the monthly pension would account to,
Monthly Pension = [15000*30]/70 = ₹6,428
Maximum And Minimum Pension Draw
The maximum and minimum limit on pension draw depends on how long an individual has worked in an organisation. Here, they use the concept of rounding off at the needle of six months.
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For example, if a woman (why every woman should be financially independent) has worked for 10 years and five months. The service time will be 10 years. However, if you have worked for 10 years and seven months, the service time will be 11 years. Therefore, ideally, an individual must work for at least seven months.
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