How To Calculate Pension ? - Provident Fund
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How To Calculate Pension ? - Provident Fund

vinaykumar07 Started The Discussion:

hi hello dear friends as per provident fund act how to calcultae pension if some one can explian me with a example i will be happy . regards VINAY

CHR - Member Since: Oct 2007
We couldn't really find much on this subject but we found some articles which you may find useful in this area.

SOCIAL SECURITY AND PENSIONS IN INDIA {PDF}
A Consolidated Model of Pensions for India

Maybe someone who has worked on this will be able to give a better idea of how the pension is calculated.

Antony Prakash - Member Since: Jul 2004
Hi Vinay,
With regards, as per Employees providend fund and misc provisions Act' 1995.

PF pension is = pensonable sal'ry*pen'le service
____________________

70
Thanking you & wishes
Antony Prakash.K

Ed Llarena, Jr. - Member Since: Jun 2004
Hi!

Pensions are normally defined by law, esp. with respect to social security and retirement benefits and other mandatory contributions imposed on employees by governments.

It is different from a separation or retirement fund whose computation is based on the number of years of service of the employee.

Of course. an employee's separation benefit can be received like a pension, when the employee opts to receive them in installment, rather than as a lumpsum amount.

In the absence of laws that provide guidelines on the matter, a pension can be designed using the life insurance models.

Under the life insurance model, a pension is seen as a replacement income when the person has retired. As such, one can be said to have adequate pension when the previous employment income is continously received by a retired employee after retirement until death.

The critical question is: how do you calculate the aggregate amount needed and its cost?

The aggregate amount can be computed as follows:

LAST MONTHLY Salary X 12 months X expected no. of years to live after retirement

(Example: US $ 2,000 X 12 X 10 years = US $ 240,000.00)

The US $ 240,000.00 is the aggregate amount that will be targetted. In insurance language, this becomes the FACE VALUE of the employee's insurance that will have to mature when the employee retires. With this amount, even without considering its annual interest earned, the employee will be guaranteed a monthly income of US $ 2,000.00 every month for TEN years. With interest considered, this fund can even extend the life of the pension to another year or two.

Now, what is the cost?

The cost of this pension fund (US $ 240,000.00) in insurance lingo is equivalent to the monthly INSURANCE PREMIUM that the insurance company will ask you to pay.

If the PENSION PLAN or program is "NOT insurance-based", then this amount will have to be saved (with interests factored) by the employee and/ or the company under a "trust fund". This may be "contributory or non-contributory" in nature, depending on the company's policy.

When a company does not have money, the insurance based model is best. The problem is whether the company is willing to buy a life insurance benefit of such a huge face value for its employees? The normal corporate insurance plans for employees are "group term life", whose premium cost is less than half of full life plans.

The problem with term insurance is: it has no CASH VALUE that can mature when the employee retires.

Best wishes.

Ed Llarena, Jr.
Managing Partner
Emilla Consulting
Manila, Philippines
*helps improve corporate governance in Asia and the Pacific Reegion)

manish2678 - Member Since: Sep 2006
hi ,


please clear me also:


the formula to calculate pension is :

(pensionable service x pensionable salary )/60

it means on retirement if u r getting Rs.25000/- ur pensionable salary will be Rs.12500/-

can u clear my doubt pl.

thanks & regards

manish

mominshahid - Member Since: Jun 2010
hello dear i send formula for calculation of pension


Attached FilesProvided by community member mominshahid. Join us to learn and grow with your peers.
File Type: xls EPF Pension.xls (25.5 KB, 1529 views)
abbasiti - Member Since: May 2010
Dear momishahid,

I have updated the excel workseet as detailed below (Please see the difference between 25.5KB & 21.5KB)

There is no upper limit for Eps-95 pension. For pension calculation, the service will be taken into 2 parts. Service before 16.11.95 and service w.e.f 16.11.95. The first one is called as past service and latter one as pensionable service. Past service is divided into 4 slabs. Service upto 11 years, 12 to 15 years, 16 to 19 years and 20 & above. If the salary on 16.11.95 is below Rs. 2500, the monthly compensation will be Rs. 80, 95, 120 & 150 respectively. For Rs. 2500 & above this will be Rs. 85, 105, 135 & 170. This amount is for those who attain 58 years on 16.11.95. In the case of those attain 58 years after 16.11.95, the above compensation will be multiplied by a factor stipulated in table B, according to the difference between 16.11.95 and the date of completion of 58 years.

For pensionable service there is a formula to calculate pension. It is Pensionable Salary x Pensionable Service / 70. Pensionable salary can be categorised in to 3. 1) Below Rs. 6500. 2) Rs. 6500 & above, but contribution on statutory celing of Rs. 6500. 3) Above Rs. 6500 & opted to contribute on actual salary. In case of 2nd, pensionable salary is Rs. 6500. In other two cases, pensionable salary will be the average of last twelve months. Also if pensionable service is 20 years & above 2 year's bonus will be given.

For details please see the web site :
EPFO

One example I shall quote.

Date of Birth - 2.1.1961
Date of join - 23.2.1987
Salary on 16.11.95 - Rs. 2500 & above
Salary on completion of 58 years on 1.1.2019 - Rs. 6500 (Statutory Ceiling)

Past Service - 8 yr 9 m (approx) rounded to 9 years
Compensation - Rs. 85
Factor as per Table B (for less than 24 years, i.e the difference between 16.11.95 & 1.1.2019) - 6.102
(This can be calculated as 1.08 to the power of 24 - 0.5, correct to 3 decimals)
Past Service Benefit - 85 x 6.102 = Rs. 519 - (A)

Pensionable Service - 23 years
Bonus (Service is 20 & above) - 2
Pensionable Salary - Rs. 6500
Pensionable Benefit - 6500 x 25 / 70 = 2321 - (B)

Total Pension - (A) + (B) = Rs. 2840

I shall insert Excel work sheet to calculate pension. Enter Date of Birth, Date of Join, Date of Seperation from Service, Salary on 16.11.95, Salary on Seperation from Service ( in compliance with the contribution to pension fund) and break in service before and after 16.11.95, if any in green colour column. The results will appear in yellow colour column. The red colour is for static information.

In case of any error or suggestion, please notice to me.

ABBAS.P.S
Secretary,
ITI Employees' Association,
ITI LTD, PALAKKAD - 678 623,
KERALA, INDIA.
Ph. +91 9447 467 667


Attached FilesProvided by community member abbasiti. Join us to learn and grow with your peers.
File Type: xls EPF Pension.xls (21.5 KB, 878 views)
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