The Employees’ Provident Fund Organisation (EPFO) primarily manages two schemes for employees working in the organised sector in the country. The EPFO has mandate to govern and regulate pension scheme (EPS 95) as well as the provident fund rules for these employees.

Besides setting guidelines and interest rates on PF deposits, the EPFO periodically determines the wage ceiling for calculating EPS contributions. Currently, the wage ceiling for EPS calculations is set at Rs 15,000, up from Rs 6,500 in 2014. This means that even if your basic salary exceeds the wage ceiling, your pension benefits will be calculated based on this Rs 15,000 limit.

Now, it is highly expected that the EPFO will hike the wage ceiling for EPS contribution to Rs 21,000 from the current Rs 15,000, as per sources. The proposal has already been sent by the labour ministry to the finance ministry, according to sources.

To become eligible for pension under EPFO, one must complete at least 10 years contributing as an EPS member. The pension starts under the EPS at the age of 58.

Also read: EPS Rules: No need to wait till age 58, EPFO members can withdraw early pension – Find out how

To calculate your EPS pension, key points are – maximum pensionable salary and maximum pensionable service.

Average pensionable salary: Pensionable salary is the average monthly salary that an employee earns under the EPS over a specific period. The maximum salary considered for EPS calculation is Rs 15,000.

Maximum pensionable service: This is the total number of years an employee works and contributes to EPF and EPS. One can have a maximum of 35 years of service considered for pension calculation.

What is the formula to calculate EPS pension?

EPS = Average pensionable salary x pensionable service/70

In September 2014, EPFO changed the formula for calculating EPS pensions. Before that, the average basic salary from just the last year of service was used.

In this story, we’ll calculate the pension for an employee who joined a company in January 2015, after the wage ceiling was increased to Rs 15,000. We’ll assume the next wage ceiling revision will occur in January 2025. The employee plans to retire in 2049 after completing the maximum pensionable service period of 35 years.

Also read: EPFO: What will be maximum pension if wage ceiling for PF contribution hiked to Rs 21,000?

We’ll divide the calculation into two parts:

First part: From January 2015 to December 2024 (10 years) with the wage ceiling of Rs 15,000.

Second part: From January 2025 to December 2049 (25 years) with a new wage ceiling of Rs 21,000.

The formula for calculating the EPS pension is:

EPS = Average pensionable salary × pensionable service/ 70

Part 1: (Pension calculation for 10 years)

Average pensionable salary: Rs 15,000

Pensionable service: 10 years

Pension = Rs 15,000×10/70 = Rs 2,142.86 per month

Part 2: (Pension calculation for 25 years)

Average pensionable salary: Rs 21,000

Pensionable service: 25 years

Pension = Rs 21,000×25/70 = Rs 7,500 per month

Total pension after 35 years of service = Rs 2,142.86+ Rs 7,500 = Rs 9,642.86 per month

Thus, the employee’s total monthly pension under EPS will be Rs 9,642.86, assuming the calculations for both parts and wage ceilings as specified.