EPS Pension: While EPF helps in forced savings towards retirement, EPS ensures a fixed amount of pension is received by the employee after retirement.
Employee Pension Scheme 1995: For an employee working in the corporate world, it is nearly a 35 years of working life. For having worked for such a long span, post-retirement which is generally at age 58 or 60, the Employees Provident Fund Scheme (EPF) and Employees’ Pension Scheme (EPS) play an important role. While EPF helps in forced savings towards retirement, EPS ensures that a fixed amount of pension is received by the employee after retirement. Both EPF and EPS are under the purview of the Employees’ Provident Fund Organisation (EPFO). Irrespective of the salary, all employees, who have a PF account number, are a member of the EPS scheme.
For most employees, 12 per cent of one’s basic pay is diverted towards EPF on monthly basis. There is no cap on the amount of basic salary on which this 12 per cent is to be contributed. For example, if the monthly basic salary is Rs 40,000, then Rs 4,800 moves into EPF each month. Every year, the government declares an interest rate on the EPF balance. The EPF calculation is, therefore, on monthly running balance. The EPF interest rate for 2018-19 is 8.65 per cent, however, it is yet to be notified by the government. So far so good. But, EPF is only one part of the employee’s overall retirement kitty – EPS is the other part. EPS pension is sometimes referred as EPF pension but technically these are different schemes.
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The working of EPS is not similar to EPF and neither does EPS contributions earn any interest. As per rules, the employer also contributes an equal percentage of 12 per cent towards the EPF. However, not the entire 12 per cent of employer contribution gets added to the employee’s provident fund. From 12 per cent of employer contribution, 8.33 per cent is diverted towards EPS subject to a cap. Unlike EPF, in EPS there is a cap of Rs 15,000 of monthly basic salary. So, irrespective of your monthly basic salary, the maximum EPS contribution in PF each month will be capped at Rs 1,250 ( Rs 15,000 * 8.33 per cent) the balance moves into the PF fund. The Employees’ Pension Scheme calculation will depend on how much of service the employee has rendered and the employee’s basic salary before retirement.
Here are EPS contribution examples for salary above and below Rs 15,000:
- For someone with monthly basic salary of Rs 16,000, Rs 2,591 goes into EPF while Rs 1,250 goes into EPS.
- For someone with monthly basic salary of Rs 14,000, Rs 2,194 goes into EPF while Rs 1,166.20 goes into EPS.
So, while the entire contribution of employee moves into the EPF, only Rs 1,250 per month ( for employees with salary above Rs 15,000) goes into EPS and balance moves into EPF. For those with basic salary below Rs 15,000, 8.33 per cent of employer contribution goes into EPS, while balance of 3.67 per cent goes into EPF.
The PF Member ID i.e. provident fund account number is the same into which both EPF and EPS contributions goes. For exempted organizations, there could be a different EPS account number for the employees.