BAJAJ BROKING
March 13, 2025
8 mins read
There are several key facets of financial planning, one of the most prominent amongst those being retirement planning. Irrespective of their field of work, a majority of working people strive to retire one day, and have access to a financially secure life. Therefore, the significance of sound and timely retirement planning cannot be overstated. We live in an age where there is no dearth of investment avenues to build a substantial retirement corpus. In this article, we shall discuss one of the oldest savings and retirement schemes in India, namely, the Employee Pension Schemes. We shall delve into
What is Employee Pension Scheme
Eligibility criteria for EPS
Benefits of EPS and how to apply for them
Pension calculation under EPS
Let us begin by discussing what is the Employee Pension Scheme. Launched in the year 1995 (hence termed EPS 95), EPS is a social security scheme managed by the Employees' Provident Fund Organisation (EPFO). The scheme has been designed to help employees in the organised sector receive pension benefits post retirement. EPS applies to all the employees who are enrolled in the Employee's Provident Fund (EPF). Once employees attain the age of 58 years and retire, they can claim their pension under the EPS.
The workings of the Employee Pension Scheme are fairly simple. Each month, the employers of employees enrolled under the Employees' Provident Fund are required to contribute 12% of the latter's salary (basic pay plus dearness allowance) to the EPF. This 12% contribution is allocated as following
To the Employees' Provident Fund: 3.67%
To the Employee Pension Scheme: 8.33%
Once employees reach the age of 58 (and retire), they are eligible to receive a monthly pension from the corpus accumulated in their EPS account. They can also choose to receive a third of the sum as lump sum payment and the rest as monthly pension. Furthermore, EPS members have the option to claim early pension under specific circumstances, including early retirement, permanent disability, etc. In the event of the EPS member's passing, their designated nominee can claim the pension (as per the applicable EPS regulations).
In addition to the contribution of the employers (8.33% of an employee's basic salary plus dearness allowance), the Government of India also contributes 1.16% of the employee's salary (basic pay plus DA) to the EPS. It is the responsibility of the employer to deposit the monthly EPS contribution into the employee's EPS account no later than the 15th of the month following the salary month.
Furthermore, employers are also required to make EPS contributions for employees working under their contractors. All the administrative costs under the scheme are also to be borne by the employer. Should an employee suffer from disability (partially or total) during their tenure at the organisation, the employer must deposit at least one month's EPS contribution into the employee's EPS account.
Now that we have discussed what is the Employee Pension Scheme and how it works, let us delve into the eligibility criteria for the scheme.
All the employees who are enrolled under the Employees' Provident Fund are also automatically enrolled under the Employee Pension Scheme.
An employee must complete at least ten years of service before being eligible to receive pension under the EPS.
There is a clear retirement age mentioned in the EPS, that is, 58 years. EPS members can claim pension under the scheme post retirement. There are, however, provisions to claim early pension post the attainment of 50 years of age. Such pension can be claimed at a reduced rate.
In case of disability, EPS members are eligible to receive early pension. They must, however, undergo a thorough medical examination to establish the existence of the disability and their inability to continue working.
For EPS members who have completed between six months and ten years of service, there is a provision to claim pension under EPS in case of unemployment exceeding two months.
The designated beneficiaries of EPS members can claim the pension if the former passes. These may include
Widow/ widower
Dependent children
Dependent parents, etc.
The Employee Pension Scheme offers a plethora of benefits to members, the most important amongst which are as follows:
EPS members are eligible for a monthly pension upon retirement (at the age of 58 years), which can help them have financial security even after retiring.
Early pension can be claimed by EPS members who are 50 years of age (or older). This pension is available at a discounted rate.
In the event of disability, EPS members are eligible for lifetime pension regardless of their years of service.
The designated beneficiaries of EPS members are eligible for pension benefits in the wake of the member’s demise.
For EPS members with less than 10 years of service, there is an option of lump sum withdrawal of EPS balance after attaining the age of 58 years.
Let us now turn our attention to the method you can use to calculate your pension under the Employee Pension Scheme.
Monthly pension under EPS = (Pensionable service x Pensionable salary) / 70
Let us discuss the concepts of pensionable service and pensionable salary under the Employee Pension Scheme and how they are computed.
Pensionable service: This refers to the cumulative service of an employee enrolled under the EPS. The quantum of an employee's service for different employers is added to arrive at this number. Therefore, an employee must obtain a certificate of service from each employer and deposit it with their new employer for their total pensionable service to be counted.
If an employee chooses to withdraw their EPS corpus before the completion of 10 years of service, they must start their EPS account (and quantum of pensionable service) from scratch in their subsequent employment. Pensionable service is counted in six month batches. Therefore, the pensionable service for 5 years and 2 months is 5 years and that for 5 years and 10 months is 6 years.
Pensionable salary: This amount is arrived at by considering the average salary of an employee during their last 12 months of enrollment under the EPS. For this purpose, the periods of non contribution (for example leave from service) are not considered. If an employee works for, say, 25 days in a month during the aforementioned period, the computation of EPS salary would still be done considering 30 days. The ceiling for pensionable salary is now ₹15,000 per month. Therefore, the maximum EPS contribution for a month from an employer can be ₹1,250 (15,000 x 8.833%)
As of January 2025, the Employees' Provident Fund Organisation (EPFO) has approved the creation of a Centralised Pension Payment System for members under the Employee Pension Scheme. When operational, this initiative would enable pensioners under the scheme to access their pension from any bank branch within the country. The move is expected to benefit more than 75 lakh EPS members spread across sectors. Furthermore, there shall be no requirement of PPO (Pension Payment Order) transfer even if a pensioner switches their home branch.
Also read: Employees’ Provident Fund
You can apply for pension benefits under the Employee Pension Scheme through the appropriate form (as per the type of pension). The prominent types of pension under EPS are
Pension upon retirement: This category of EPS pension can be claimed when an EPS member attains retirement (and reaches the age of 58 years)
Early pension: An EPS member can apply for early pension after reaching the age of 50 years provided they have completed 10 years of service. This pension is available at a 4% reduced rate.
Widow/ widower pension: In the event of an EPS member's passing, their widow or widower can claim pension benefits provided they submit a certificate proving they have not remarried. If there is more than one widow, the oldest one is eligible for the pension under the scheme.
Pension for dependent children: The dependent children of EPS members can claim pension under the scheme until they are 25 years of age. This amount is limited to 25% of widow pension and payable to no more than two children (of the deceased EPS member).
Pension for orphaned children: For the orphaned children of EPS members (with no surviving parent), 75% of widow pension can be paid. This pension is available for two surviving children of the deceased EPS member.
Pension for dependent parents: The dependent parents of deceased EPS members can also claim a monthly pension if they are the designated beneficiaries (or in the absence of a designated beneficiary).
Here are some of the notable forms under the Employee Pension Scheme.
Form 10C: For withdrawal of pension before completion of 10 years of service
Form 10D: Withdrawal of monthly pension after the member has attained the age of 50 years
Form 31: Partial withdrawal of EPS
The Employee Pension Scheme is a well designed savings and retirement scheme that benefits millions of individuals in the organised sector as well as their beneficiaries in the event of unforeseen events. With the latest improvements in the implementation of the scheme, it is likely to become easier for EPS members to access their pension and track their pension accounts.
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Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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EPS is available for salaried employees in the organised sector enrolled under the Employees' Provident Fund. The eligibility criteria to join other retirement schemes as well as their respective benefits may be different from the EPS.
Yes, you may withdraw your EPS balance before retirement in case of
Completion of 10 years of service
Early pension required (minimum age should be 50 years)
Disability suffered during active enrollment under the EPS
Resignation from service before completion of 10 years of service
Pension amount under EPS is computed using the following formula:
Monthly pension under EPS = (Pensionable service x Pensionable salary) / 70
You can either withdraw your EPS balance after resignation from one employer (provided all the eligibility criteria for withdrawal are fulfilled) or continue with the same EPS account.
The tax laws prevailing in the year of EPS withdrawal shall apply.
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