People working in private organisations and making PF contributions are eligible for pension under the Employees’ Pension Scheme (EPS) on fulfilment of some terms and conditions.
It is well known that government employees, who joined their services before 2004, get pension after they retire. However, people working in private organisations are also eligible for some fixed pension under the Employees’ Pension Scheme (EPS) on fulfilment of some terms and conditions.
The EPS scheme is part of the provident fund (PF) scheme of private sector organisations having 20 or more employees. The scheme is optional for organisations with less than 20 employees and for PSUs and semi-government organisations.
Eligibility: The scheme is compulsory for private sector employees having a basic salary of Rs 15,000 (which is revised periodically). It is optional for employees having a basic salary of over Rs 15,000 per month. The basic salary includes basic wages, retaining allowance and dearness allowance (DA), including the cash value of any food concession.
How to apply: The EPF account is opened for the employees who join an organisation registered under the EPFO.
Contribution: Out of 12 per cent matching contribution by employers, 8.33 per cent goes to EPS. Out of the total 24 per cent (12 per cent employee contribution plus 12 per cent employer contribution), 15.67 per cent goes to EPF. The Central government also contributes 1.16 per cent of the eligible basic salary.
Return: The amount of pension is calculated by the following formula: X=AxB/70
(Where, X=monthly pension, A=pensionable salary, B= pensionable service).
Pensionable salary is average monthly pay drawn during the contributory period of service in a span of 12 months preceding the date of exit from the membership of the PF. The maximum pensionable salary is limited to Rs 15,000 per month, unless if at the option of the employer and employee, contribution is paid on salary exceeding Rs 15,000 per month from the date of commencement of this scheme or from the date salary exceeds Rs 15,000, whichever is earlier, and 8.33 per cent share of the employer thereof is remitted into the pension fund.
Benefits: An employee is eligible for pension if he/she has rendered eligible service of 10 years or more and retires at the age of 58. One may also opt for early pension if he/she retires at an age of 50 after rendering eligible service of 10 years or more. However, the amount of pension is reduced by 4 per cent for each year if taken in advance before 58 years of age.
If an employee retires at the age of 58 or more after rendering 20 or more years of eligible service, 2 years will be added to the pensionable service, which is determined by the contribution received or receivable in the employees’ pension fund.
On the death of the member, the family (spouse and thereafter two below-25 children) is entitled to receive monthly family pension.
Earlier, options of part commutation of pension fund and also three options of pension having conditional return of capital were available, which were abolished in 2008.
Tax benefits: Employee’s entire contribution and contribution of the employer up to Rs 15,000 per month are tax exempt under section 80C of the Income Tax Act.