A portion of every salaried individual's income is deducted monthly and deposited into the Provident Fund (EPF). While one receives a substantial lump-sum amount upon retirement, few are aware that this same PF account can also provide a fixed monthly pension during one's old age.

Under the Employees' Pension Scheme-1995 (EPS-95) of the Employees' Provident Fund Organisation (EPFO), you are entitled to pension benefits for life. The eligibility requirement for this is a minimum of 10 years of service. Let us understand in detail the rules of EPS-95, how the benefits are availed, and how the pension amount is calculated.

What is the EPS-95 pension scheme, and where does the money come from?
As per the rules, 12% of your basic salary and Dearness Allowance (DA) is contributed to the EPF account. Your employer contributes an equal amount (12%). However, out of the employer's 12% contribution, 8.33% goes into your pension fund (EPS), while the remaining 3.67% goes into the EPF.

Note: The government has capped the maximum basic salary considered for pension purposes at ₹15,000. This means the maximum amount the employer can deposit into the pension fund each month is ₹1,250 (8.33% of ₹15,000).

What are the eligibility criteria for receiving the pension?
10 years of service: To be eligible for the pension, your total service period must be at least 10 years. It is not mandatory for these 10 years to be with a single company; you can fulfill this requirement by working for different companies (provided your UAN remains the same).

Age of 58 years (Full Pension): You begin receiving the full pension upon attaining the age of 58. Early Pension: You have the option to start receiving your pension between the ages of 50 and 57. However, for every year prior to age 58 that you begin drawing the pension, your pension amount will be reduced by 4%.

Bonus: If you complete more than 20 years of service, a bonus of 2 years (bonus years) is added to your 'pensionable service'.

The complete pension calculation
There is a fixed and straightforward formula for calculating the pension under EPS-95:
Monthly Pension = (Pensionable Salary x Pensionable Service) / 70

This is based on the average basic salary of the 60 months (5 years) immediately preceding retirement. (Since the rule sets a maximum limit of ₹15,000, this figure is capped at ₹15,000). It also considers the total number of years worked (with a maximum limit of 35 years).

Calculation
Let’s assume an employee has worked for 30 years and their average basic salary over the last 60 months is ₹15,000.

Average Monthly Salary: ₹15,000
Years of actual service: 30 years
Bonus for service exceeding 20 years: + 2 years
Total Pensionable Service: 32 years
Pension formula: (15,000 x 32) / 70
Monthly Pension upon retirement: ₹6,857 per month
If the employee completes the maximum service period of 35 years (including the bonus), the maximum pension would be (15,000 x 35) / 70 = ₹7,500 per month.

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