Employees Pension Scheme 1995
In response to the long-standing demand of the working class for pension benefits, the Employees Pension Scheme 1995 (EPS) was introduced with effect from 16/11/1995. This benefit is in addition to the Employees Provident Fund [EPF] Benefit for the members of the EPF. This scheme is compulsory for all those who become members of EPF from 16/11/1995 onwards.
NOTE: The details given below are relevant and applicable only to those who entered service and became members of the scheme on or after 16/11/1995. For those who joined earlier, there are different provisions.
Contributions
Employees need not make any separate special contribution for EPS. A part of the employers' contribution to the EPF is diverted to the EPS account of the member. Normally, the employers contribute 10% or 12% of the wages every month to the EPF account of the member. Out of this, 8.33% is diverted to the EPS. The government contributes 1.16% of the wages every month to the EPS. Therefore, the employee need not contribute anything separately for the EPS. Contributions continue until the member attains the age of 58 years only. Thereafter, no contribution is made to the pension scheme. After 58 years of age, the member can get a pension if he is otherwise eligible.
Benefits Do Not Depend on the Amount of Contribution
One basic point about the pension benefits under the EPS is that no account is kept about the exact amount of contribution made to each account. This is because the benefits do not relate to the amount of contribution at all. Benefits depend solely upon the number of years of pensionable service and the amount of pensionable salary.
Pensionable Service
Pensionable service is the service [after 16/11/1995] the member has put in and contributions were made to the scheme. This may be either under one employer continuously or under different employers due to leaving one job and joining another. The periods of interruption between one employment and the other will not count for pensionable employment since during these periods no contribution has been made to the EPS. Therefore, it is necessary that one takes care to stick to the EPS even while changing jobs. This can be done by getting what is called the 'scheme certificate' when one leaves one job. On such occasions, when one leaves a job midway, one normally has two choices under the EPS: 1. to opt for the withdrawal benefit under the EPS or 2. to opt for 'scheme certificate'. The option to get the withdrawal benefit is available only if the service put in is below 10 years. If one has served for more than 10 years, one has to compulsorily take the 'scheme certificate' only.
Under the 'withdrawal benefit', one gets a paltry amount, just a portion of the contributions made to the EPS depending on the length of service. There is a table for this purpose. Since the contribution is normally made on monthly wages of up to Rs.6500 only [being the ceiling for applicability of the scheme], the contribution made will not be a substantial amount. As already mentioned, the percentage of contribution is only 8.33 + 1.16 = 9.49%. This will work out to only Rs. 616.85, say 617 per month [6500 * 0.0949]. Under withdrawal benefit, even this amount is not fully given back. Only a portion is given. For example, if one has put in 9 years of service, he will get Rs. 617 * 9.88 = 6096 only.
Note: The contribution to the Pension Fund can be made beyond the ceiling limit of Rs.6,500/- on the joint request of the employee and the employer so as to get more pension benefit; but only when the request is made immediately upon salary/wages exceeding the ceiling.
A member leaving the service after putting in 10 years of service will be issued a 'scheme certificate'. If he joins another service and leaves that also, he will get another 'scheme certificate' which will include the previous tenure of service. For example, if one joins an establishment on 1/1/1996 and leaves it on 1/2/2006, he will get a 'scheme certificate' which will show that he has put in a pensionable service of 10 years and one month. Thereafter, if he joins another establishment on 1/3/2006 and leaves that also on 1/5/2007, the new scheme certificate will show the pensionable service as 10 yrs 1 mth + one year two months = 11 years and 3 months. The pensionable service gets added on like this until one finally retires or reaches the age of 58 years. In the unfortunate event of the member dying during the period of unemployment but holding the scheme certificate, his family will get a family pension. In this way, having a 'scheme certificate' is like having an insurance policy without the need to pay any premium!
Early Pension
If one has put in 10 years of pensionable service and attains the age of 50 years and one decides not to join any further service, one can get what is called an early pension at a reduced rate. In this case, the amount of pension is reduced at the rate of 4% per year that is less than 58 years of age, subject to a maximum reduction of 25%. But if after getting the early pension, one joins another job, one cannot continue to be a member of the EPS. His further spell of service after getting a pension will not be counted as pensionable service since the moment he gets a pension, he ceases to be a member of the EPS and becomes a pensioner.
Superannuation Pension
This is payable on attaining the age of 58 years after putting in 20 years or more of service.
Retirement Pension
This is payable if a member retires from service before attaining the age of 58 years but after putting in 20 years or more of service.
Formula for Calculation of Pension
The formula for calculation of pension is very simple. It is:
Monthly Pension = (Pensionable service x Pensionable Salary) / 70.
Pensionable service has already been explained above. Pensionable salary is the average of the last 12 months' salary before retirement or superannuation.
Family Pension etc.
In addition to the above, the EPS also provides for family pension, disability pension, etc.
Family Pension is payable in case of the death of a Member:
• After leaving the employment
• While in employment
• After drawing the Pension
Family Pension is payable even where the death occurs before 10 years of service in case of death while in service. Thus, in such cases, the minimum eligible service of 10 years is not applicable.
On the death of a member pensioner, the Pension is automatically payable to the spouse (widow/widower and eligible children).
When a member dies while in service as a Bachelor or Spinster or where there is no spouse or children below 25 years, the Family Pension is payable to the Nominee till his/her death.
When there is no valid nomination, the Family Pension is payable to the dependent father followed by the dependent mother.
In addition to Family Pension to Widow/Widower, children below 25 years are also eligible for Pension simultaneously, two at a time in order of their seniority. It is payable to the married daughter/son also.
Minimum Widow Pension - Rs.450
Minimum Child Pension - Rs.150
On the death or re-marriage of the widow/widower, the children will be given an enhanced pension treating such children as Orphans.
Minimum Orphan Pension - Rs.250
On behalf of the minor children, the pension is payable to the guardian.
Any child in a family with total and permanent disablement will receive a pension till death; in addition to other eligible children.
Where an employee is totally disabled and leaving the service on account of disablement, disablement Pension is allowed. No age and service are stipulated to claim this pension; provided disability should be 100% rendering the member unable for the job he was in before disablement.
Wherever the Pension claims are received one month before the date of Retirement, the Regional Provident Fund Commissioner will deliver the Pension Payment Order on the day of Retirement.
Apart from the Pension benefit, a member pensioner can commute up to one-third of his pension and in lieu of this, he will receive a lump sum amount equivalent to 100 times the commuted value of the pension; but once the option is exercised, the same cannot be changed.
A pensioner may nominate a person to receive a lump sum amount after his death as Return of Capital by opting for it.
NOTE: It is once again emphasized that the above details are applicable only to those who joined the Scheme on or after 16/11/1995. For those who joined earlier, the methods of calculation are slightly different. For the sake of brevity and simplicity, they are not elaborated here.
******************************