There is a discussion underway to increase the salary limit under the Employees' Pension Scheme (EPS) of the Employees' Provident Fund Organization (EPFO). Increasing the current salary limit from ₹15,000 to ₹25,000 could significantly impact employees' future pensions. Consequently, there is talk on social media of a monthly pension of ₹12,500. However, not every employee will receive this amount.

How is pension calculated?
Pension under EPS is calculated according to a fixed formula.

Monthly pension = Pensionable salary × Pensionable service ÷ 70

For pensionable pay, the salary drawn on the day before retirement is considered. As per the proposed ₹25,000 pay ceiling, the maximum pensionable salary can be considered as ₹25,000.

How to get a ₹12,500 pension?
If an employee's average pensionable salary is ₹25,000 and they have 35 years of pensionable service, the pension can mathematically go up to ₹12,500. If a 2-year service bonus is applicable after 33 years of service, the service can be considered 35 years.

EPF contributions also increased.
Under the old ₹15,000 limit, the employer's 8.33 percent share in EPS meant a maximum of ₹1,250. If a salary limit of ₹25,000 is implemented, this amount could be around ₹2,083.

Will everyone receive a ₹12,500 pension?
No, a basic salary of ₹25,000 does not guarantee a pension of ₹12,500. The final pension amount will depend on meritorious service, average salary, and applicable rules. EPS pension requires a minimum of 10 years of pensionable service. Eligible employees also have a minimum monthly pension of ₹1,000. Therefore, the increase in the salary limit may benefit employees who have been contributing to EPFO ​​for a long time. However, the actual pension amount will vary depending on each employee's service and salary.

PC: Saamtv