Understanding Pension Funds: How Does Your Salary Affect Your Future Benefits?

What are the criteria for a pension fund based on salary?

In terms of pension funds related to salary, the criteria typically involve factors such as the employee's salary level, years of service, and contribution rate. Employers often have specific guidelines outlining how pension funds are calculated based on these criteria. It's important for employees to understand the eligibility requirements and how their salary and tenure can impact their pension benefits in the long run.

Dear KKJ,

Regarding the pension fund, an employer contributes 12% of basic+DA, out of which 8.33% (of basic+DA) goes to the pension fund. If 8.33% of basic+DA or 541 Rs, whichever is less, goes to the pension fund. In other words, if 8.33% of basic+DA exceeds 541 Rs, only 541 Rs will go to the pension fund, and the remaining amount will go to the PF account.

Regards,
Bandini

Just take an example...

Suppose A's income is 6000/-
then 6000 * 12% = 720 it will be divided into 8.33% & 3.67%
Pension (500) Provident fund (220)

If A's income is 10000/-
then 10000 * 12% = 1200 since pension has a ceiling of Rs. 541/-
But 8.33% of 10000 is 833, but it will be capped at 541
The remaining amount will go to Provident Fund 1200-541 = 659
I think it will be easy for you now.

Dear KKJ,

Bandini & Ritesh Jain are 100% true. I would like to attach an Excel format for easy understanding and counting of pension fund and COMBINED CHALAN OF A/C. 1, 2, 10, 21 & 22. Also, you can call my number for more details.

Regards,
Uttam
9099287355

Dear Uttam Sir,

Can you explain when an employee becomes eligible to receive a pension from the pension fund? Additionally, if an employee wishes to withdraw his provident fund (PF), will he also receive his pension fund amount? Please provide an explanation.

Regards,
Bandini

Hello Bandini,

An employee is eligible for a pension once he has completed 10 years of service or reaches the age of 58 years. If an employee resigns from the service before completing 10 years, he will receive provident fund (PF) and pension. However, if the employee resigns after completing 10 years, he will receive PF and a Scheme certificate.

Based on the Scheme certificate, he will receive a pension after reaching the age of 58 years.

Dear Bandani,

Mr. Venkatesh is absolutely correct. I would like to add a few points:
1) You can transfer your pension fund from company to company after completing 10 years of service.
2) 8.33% of Rs 6500 (Basic+DA+FIXED), which is Rs 541, will be deposited into the Pension Fund on a monthly basis.
3) Employees with a higher basic salary: Some companies still deduct the PF (12% employer contribution) and deposit 8.33% into the pension fund. However, upon withdrawal, the remaining amount transfers to the PF account, and the withdrawee will receive the remaining amount through the PF Fund.

I hope this information is helpful to you.

Best regards

Please explain to me the calculation of the pension amount after completing their service.

Trilok Chand
Personnel Officer

Pension amount = pensionable salary / 70 * service multiplier factor (as per Table D). Note: Service before 15.11.1995 takes Table B multiplier factor.

Pension amount = pensionable salary / 70 * service multiplier.

Note: For service before 15.11.1995, take the multiplier factor from table B. For service after 15.11.1995, take the multiplier factor from table D.

Dear Bandini & Trilok Chand, the above answers are mixed with truths and falsehoods.

1. For a pension, a minimum of 10 years of service is required.
2. Pension can be availed after reaching the age of 58 years, even if the service continues.
3. Employees who have left EPF can avail of a pension after turning 50 years old. However, for each year below 58 years, they will lose 4% in pension.

Pension Calculation Details

Table D is used for calculating withdrawal benefits for those who are not eligible for a pension due to not completing 10 years of service. For more details on pension calculation, I will provide in the post below.

Regards

There is no upper limit for EPS-95 pension. For pension calculation, the service will be taken into two parts: service before 16.11.95 and service w.e.f. 16.11.95. The first one is called past service, and the latter one is pensionable service. Past service is divided into four slabs: service up to 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, and 150 respectively. For Rs. 2500 & above, this will be Rs. 85, 105, 135, and 170. This amount is for those who attain 58 years on 16.11.95. In the case of those who 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.

Pensionable Service Calculation

For pensionable service, there is a formula to calculate pension: Pensionable Salary x Pensionable Service / 70. Pensionable salary can be categorized into three tiers: 1) Below Rs. 6500. 2) Rs. 6500 & above, but contribution on statutory ceiling of Rs. 6500. 3) Above Rs. 6500 & opted to contribute on actual salary. In the case of the second tier, pensionable salary is Rs. 6500. In the other two cases, pensionable salary will be the average of the last twelve months. Also, if pensionable service is 20 years & above, a 2-year bonus will be given.

For details, please see the website: EPFO.

Example Calculation

- Date of Birth: 2.1.1961
- Date of Joining: 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

Minimum Pension Calculation

Besides the above method calculation, there will be a minimum for those who have service before 16.11.95. In the EPS-95, they are categorized into three:

1. Date of commencement of Pension before 16.11.2000
2. Date of commencement of Pension between 16.11.2000 & 16.11.2005
3. Date of commencement of Pension after 16.11.2005

As the first two categories are already over, I shall give a brief on the third. Pensionable benefit (minimum) of Rs. 635 and Past service benefit as mentioned above, subject to a minimum of Rs. 800. This amount is for 24 years or more service. If it is less than 24 years, this will be reduced proportionately (amount x actual service / 24). However, this amount will be subject to a minimum of Rs. 450.

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

In case of any errors or suggestions, please notify me.

Regards, Abbas P.S., ITI Ltd, Palakkad - 678 623

Ph. [Phone Number Removed For Privacy Reasons]