Pension under Employees Provident Fund EPF

 Pension under Employees Provident Fund EPF

-Dr. Lalit Kumar Setia

The Employees Provident Fund (EPF) is known as Retirement Fund for the employees associated with EPF. Every month a portion of the salary of an employee is deducted by the employer and deposited in his/her UAN (Universal Account Number) allotted by Employees Provident Fund Organization.

Amount of EPF and EPS

The amount of Employees Provident Fund EPF is increased every month with the contribution from salary of employee (i.e. 12% of the basic salary) and the contribution of employer is generally equivalent to the employee’s contribution. A portion of employer’s contribution i.e. 8.33% of the basic salary, is credited to the Employees’ Pension Scheme EPS. Suppose an employee is getting salary of Rs. 10000, then Rs. 833 will be deposited in his EPS every month by the employer i.e. 8.33% of the Basic Salary of employee. If salary is Rs. 15000, then Rs. 1250 will be credited. If salary is above Rs. 15000, then also maximum contribution to the EPS is up to Rs. 1250 per month.

The maximum amount of EPS contribution is 8.33% of basic salary (max. Rs. 15000) i.e. Rs. 1250 per month.

Who receives the Pension under EPS?

Only the employees registered in EPF and whose contribution is received for at least 10 years regularly, are entitled for pension. Generally, the amount of pension is given at the age of 58, not before that age. However, if an employee fills the form 10D then he can take the pension from the age of 50 years also. In case of death of an employee whole tenure of service is less than 10 years, then the amount of pension can be withdrawn in the year, in which the employee be of 58 years’ age. There are four types of pension provided by the EPFO:

a. Superannuation Pension:

It is provided to an EPFO subscriber at the age of 58. The employee may be in service or may not be in service, he is entitled for the superannuation pension. He has to fill form 10D for applying the pension.

b. Reduced Pension:

If an employee left the service, then he can start taking of pension from the age of 50 years. Such pension is provided as reduced pension. An EPF subscriber who made an active pension contribution in EPF for 10 years or more; can withdraw early pension if he or she has attained the age of 50 but is less than 58 years.

The pension amount is reduced to a rate of 4% per year until the employee reaches the age of 58 years.

Firstly original pension amount will be calculated and then a percentage (i.e. 4% per year) will be reduced from the original pension. Suppose an employee decides to take the reduced pension in the age of 54 years that is 4 years earlier than of 58 years. Then the pension will be reduced by 16%. If original pension is Rs. 5000 then he will be provided Rs. 4200 per month.

c. Disablement Pension:

If an employee becomes disabled and leave the service due to total or permanent disablement; then he is provided disablement pension. From the date of disablement, the employee gets pension paid for lifetime. The member will be required to have a medical test to ascertain that he/she is not fit for the work that he/she was doing before getting disabled.

d. Widow and Children Pension:

If an employee is died and the spouse and children are provided pension from the EPFO, then it is known as Widow and Children Pension. Such pension is provided to the spouse of died employee till the death of spouse or remarriage of the spouse. The minimum pension is Rs. 1000 per month and the amount of calculated according to Table C of EPS (i.e. the amount of pension which would have been admissible as if employee had retired on the date of death).

In case, the employees is decreased then the surviving children receive pension, in addition to the widow pension. This pension will be applicable till the age of 25 years of the children, maximum paid to two children. The amount will be 25% of the widow pension amount.

e. Orphan Pension:

If an employee is died and there is no surviving spouse. Then his son or daughter becomes orphan. Then up to the age of 25 years, the son or daughter is entitled for the pension. Such pension is known as Orphan Pension. It is an amount i.e. 75% of the widow pension.

f. Nominee Pension:

If an employee has no spouse and no children and he declares nominee by filling form 2(R) then the nominee is provided pension.

g. Dependent Parent Pension:

If an employee has no spouse and no children and he also not declared anyone to be nominee; then the dependent father or mother provided the pension after the death of the employee.

d.

Amount of Pension under EPS

After retirement the amount of pension under EPS is minimum Rs. 1000 per month and maximum Rs. 7500 per month. How it is calculated?

The monthly pension is equal to Salary multiple by years of EPS contribution and divided by 70. Suppose an employee’s pensionable salary is Rs. 15000 per month during the last five years of his tenure of service.

The pensionable salary is average monthly salary received by an employee in last 60 months before he/she decides to exit the EPS.

Then the monthly average salary of last five years will be Rs. 15000. If an employee works for 35 years, then his pension will be

(15000x35)/70 = Rs. 7500 per month which is maximum pension.

Because the contribution to EPS is based upon the salary up to Rs. 15000, the pension cannot exceed Rs. 7500 per month.

What will happen if upper limit of Rs. 15000 is removed?

The limit of Rs. 15000 may be removed and in case, it happens, then the amount of pension will be increased. For example, if the average salary of last five years is. Rs. 42000 and the employee worked for 30 years, then the pension will be (42000x30)/70 i.e. 18000 per month.

*Copyright © 2021 Dr. Lalit Kumar. All rights reserved. 

This article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was published on 24th September 2021 and last updated on 24th September 2021. The writer can be contacted on lalitkumarsetia@gmail.com 

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