EPS Pension: If the Ministry of Labour and Employment’s proposal to raise the wage ceiling to Rs 21,000 under the EPFO is approved, it will lead to a significant increase in the maximum pension payout for organized sector employees. According to sources, the labour ministry has proposed to the finance ministry to consider raising the wage ceiling from Rs 15,000 to Rs 21,000 for calculating employees’ provident fund contributions.

The Employees’ Pension Scheme (EPS) is managed by the Employees’ Provident Fund Organisation (EPFO). Since September 1, 2014, the wage ceiling for calculating the EPS pension has been capped at Rs 15,000. However, the proposed increase could provide much-needed relief and enhanced benefits to employees.

Step-by-step calculation of the increased pension:

Current EPS pension formula:

Formula: EPS Pension = (Average Salary x Pensionable Service) / 70

Average salary: Basic salary + dearness allowance (DA)

Maximum pensionable salary: Currently Rs 15,000

Maximum Pensionable Service: 35 years

With the current wage ceiling of Rs 15,000, the maximum EPS pension is calculated as:

EPS Pension = Rs 15,000 x 35 / 70 = Rs 7,500 per month

Proposed wage ceiling increase:

If the wage ceiling is increased to Rs 21,000, the new pension calculation would be:

EPS pension = Rs 21,000 x 35 / 70 = Rs 10,050 per month

This indicates an increase of Rs 2,550 per month in the EPS pension, significantly boosting the retirement income for eligible employees.

Also read: EPFO Update: Wage ceiling for employees’ provident fund contribution may be hiked to Rs 21,000 – Details here

Contribution breakdown:

Employer Contribution: Under EPS, the employer contributes 8.33% of the employee’s salary, which would now be calculated on the revised wage ceiling.

For a basic salary of Rs 21,000, the maximum contribution to EPS by the employer would be:

EPS contribution = Rs 21,000 x 8.33% = Rs 1,750 per month

EPFO contribution:

Consider an employee joining a company in October 2024 with a basic salary of Rs 21,000.

The total EPF contribution for the month of October, considering both the employee’s and employer’s share, would be Rs 3,290.

This increase in wage ceiling would ensure a higher contribution to both the EPF and EPS, ultimately leading to a larger pension post-retirement.

Summing up:

The proposed increase in the wage ceiling to Rs 21,000 under the EPS would result in a substantial hike in the pension amount, offering greater financial security to retirees. By increasing the pension from Rs 7,500 to Rs 10,050 per month, the EPS benefits can better align with current economic realities, providing organized sector employees with a more robust retirement safety net.