How EPS Turns Part Of Your PF Into Lifelong Income

Let's decode how EPS works, who qualifies, and how pensions are calculated, using simple examples for different salary levels

In Part 3, we explored how EPF balances earn interest and why the 8.25% rate matters for savers. But retirement planning isn't just about a lump sum -- it's about having a steady monthly income after you stop working. That's where the Employees Pension Scheme (EPS) comes in.

Every salaried employee enrolled in EPF also contributes to EPS, which provides a monthly pension, turning part of your employer contribution into lifelong income.

In this part, we decode how EPS works, who qualifies, and how pensions are calculated, using simple examples for different salary levels.

What is EPS and who runs it?

The Employees Pension Scheme (EPS), 1995 is a social security scheme under the Employees Provident Funds and Miscellaneous Provisions Act, administered by EPFO. Unlike EPF, which sits in your personal account, EPS is a pooled fund: contributions from many employers fund pensions for all eligible employees.

• Introduced in 1995, EPS provides a modest monthly pension after the age of 58.
• It also offers benefits for widows, disabled employees, and children in case of premature death.
• EPS does not give a lump sum at retirement -- only a monthly pension based on your years of contribution and wage ceiling.

How contributions are split

When both employee and employer contribute 12% of basic salary + DA:

Tip: Think: EPS = pension, EPF = retirement pot, EDLI = life insurance.

Eligibility for EPS pension

To draw a monthly pension:

• Complete at least 10 years of service contributing to EPS.
• Reach 58 years of age (or 50 with reduced pension).
• Be a member of EPF on or after November 16, 1995.

If you leave service before 10 years, you can withdraw the EPS contribution as a withdrawal benefit, but no pension is payable.

How pension is calculated

EPS pension formula:

Monthly pension = Pensionable salary times; Pensionable service/70.

Where:

• Pensionable salary: Average monthly basic + DA in the last 60 months of service (capped at Rs 15,000).
• Pensionable service: Total years contributed, rounded up for 6 months or more.

Worked example 1: Rs 15,000 ceiling case.

Suppose Ramesh, a factory worker:

• Basic salary = Rs 15,000/month
• Contributes to EPS for 25 years
• Retires at 58

Calculation:

Monthly pension = 15,000 × 2570 = Rs 5,357.

Ramesh receives Rs 5,357/month for life, with survivor benefits to his spouse.

Worked example 2: Rs 30,000 salary case

Suppose Rahul, an IT professional:

• Basic salary = Rs 30,000/month
• Contributes to EPS for 25 years
• Retires at 58

Step 1: Determine pensionable salary

• EPS uses salary ceiling of Rs 15,000, so: Pensionable salary = Rs 15,000

Step 2: Pensionable service

• Years = 25

Step 3: Calculate monthly pension

Monthly pension = 15,000 × 2570 = Rs 5,357.

Observation: Even though Rahul earns double the salary of Ramesh, his EPS pension is the same, because of the Rs 15,000 ceiling.

Step 4: Employer contribution split

Key takeaway: Higher salaries don’t increase EPS pension under current rules, but EPF grows faster with higher pay.

First-time readers should note

• EPS is a lifelong monthly pension, not a lump sum.
• Salary ceiling limits your pension, but EPF benefits from higher salary.
• If you want more retirement security, consider Voluntary Provident Fund (VPF) to boost EPF.
• Keep track of policy changes: Proposals exist to raise the EPS ceiling, which could increase pension accrual.

The takeaway

EPS transforms part of your employer contribution into a steady monthly income, giving you financial security in retirement. By comparing the Rs 15,000 and Rs 30,000 examples, first-time employees can see clearly how the ceiling works, why EPF and EPS are different, and how your salary affects each component.

Limitations of EPS

• Low payouts: Most workers receive between Rs 1,000 and Rs 3,000 per month as pension.
• No inflation indexation: Unlike government pensions, EPS does not automatically increase with cost of living.
• Capped salary base: The Rs 15,000 wage ceiling means many middle-class workers cannot replace their monthly income with EPS.

This is why EPS is often seen as only a modest supplement, not a full retirement solution.

The bottom line

EPS is the pension pillar of India’s retirement system for salaried workers. While it provides lifelong income, the amounts are modest for most due to the Rs 15,000 ceiling. For someone new to the workforce, the key takeaway is: EPF will give you a lump sum, EPS a pension -- but you must plan beyond EPS if you want comfortable retirement income.

Part 1: Payslip To Pension To Long-Term Wealth: How EPF Works

Part 2: EPF Secrets Revealed: Where Your 12% Goes

Part 3: EPF@8.25%: Is It Really Worth It?

Part 5: EPF: How To Withdraw Smart, Protect Your Corpus

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