Is the New Pension Contribution Basis Rs. 15000? Seeking Clarity on Employer's Share

Presently, the employer's contribution towards the pension scheme is a maximum of Rs. 541/- based on Rs. 6500/-. Please let me know if, with the new changes, the basis should be Rs. 15000/- so that the employer's contribution towards the pension at 8.33% is a maximum of Rs. 1250/-.

Regards,
V M Sapale

Presently, the employer's contribution towards the pension scheme is a maximum of Rs. 541/- based on Rs. 6500/-. Please let me know whether with the new changes, the basis should be Rs. 15000/- so that the employer's contribution towards the pension at 8.33% is a maximum of Rs. 1250/-.

Further, there is no maximum limit for the PF basis. Employees' contribution to PF is 12% of the actual basic salary without the ceiling of the basis Rs. 6500/-. What changes need to be made with the new amendment effective from 01.09.2014 in our case.

Regards,
V M Sapale

Yes, 1250 is the maximum limit. This amount will be shifted from the 3.67% of PF contribution to 8.33% of EPS contribution. The total amount will remain the same.

Please refer to the attached Excel calculation for better understanding.

Regards.

If an employee works for 30 years, with this scheme of EPF & EPS, the total contribution to EPS with 8% annual interest becomes Rs. 24,00,000 (TWENTY FOUR LAKHS). However, we receive a pension of Rs. 2500 to 3500 at most, and there is uncertainty about how long we will receive the pension. The principal amount is not returned. So, where is the justice in this scheme? It should not have been made compulsory. Why is nobody raising their voice against this?

I agree with you; the worst part is that interest on pension contributions is not applicable. A long period of pension savings under the EPS scheme gives low returns, which is unjustified. The minimum pension declared is 1000. As mentioned in the notification, all words or figures of 6500 will be replaced with 15000. The minimum pension per month would be 15000, am I correct? Correct me if I phrased it wrong in that.

Thanks & Regards,
Pawan Kumar P

Hi Pawan,

No, it is not 15000. If an employee works in this slab for 30 years, he will get 6428.57 as a pension. The next column in your attachment accumulates this pension amount for 20 years, which is of no use. But what is the guarantee that a person will enjoy the pension for 20 years? Our argument is: what happens to the principal and the interest for the service period? They could retain the pension amount as 541 only even if the PF calculation is for 15000 if they want to do any good/favor to the employee community.

Thanks & Regards, Mohan

Thank you very much for your assistance. In my previous reply, I mistakenly wrote "minimum pension 15000" instead of "maximum pension 15000."

Pension Limits and Eligibility

1. The minimum pension limit is 1000, as per the recent notification. Is there a maximum figure for pension eligibility? If so, is it 15000? If yes, could you please provide the section of the act or notification where this is specified?

2. Could you also share the calculation method you used to arrive at the pension value of 6428.57/-? I have utilized the formula (Pensionable salary * Pensionable service) divided by 70 for the calculation. I have detailed the monthly breakdown in the attachment of my previous reply.

Example Scenario: Pension for 20 Years

3. As an example, I assumed a scenario where an employee receives a pension for 20 years. The PF act mentions that the family members of the nominated employee are eligible for a pension after the employee's tenure.

4. My calculations are based on the assumption of a new employee joining now and forecasting future amounts based on the current process.

5. I agree with Kumar's point regarding the lack of interest on pension contributions. Saving for a long period under the EPS scheme yields low returns, which seems unfair.

Seeking Advice on Pension Concerns

Could you advise on the appropriate channels to address these concerns? As a young professional, I anticipate changing firms within 5 to 9 years. In such a scenario, I plan to opt for withdrawal and invest the lump sum in alternative options for better returns exceeding the future pension benefits.

Considering the possibility of staying beyond 9 years and six months in an organization, where withdrawal is not feasible due to pension eligibility criteria, how should I proceed?

Thanks & Regards,

Pavankumar P

Hi Pavan,

Go through the attachment, which provides some clarity about EPS.

Clarification on Pension Limits

Thank you very much. In my previous reply, I mistakenly typed "minimum pension 15000" instead of "maximum pension 15000." Let me phrase it again here:

1. The minimum pension limit is 1000. Recently, a notification has been released. Is there any maximum figure for the pension? If so, is it 15000? Please share the section of the act or notification where this is mentioned.

2. Can you please share the calculation method of how you arrived at the value of Pension 6428.57/-? The formula I used is (Pensionable salary * Pensionable service) divided by 70. I have detailed this month-wise in my previous reply attachment.

3. I have taken 20 years as an example, considering if an employee receives 20 years of pension. The PF act mentions that the family members nominated by the employee will be eligible for a pension after his tenure.

4. Additionally, I have taken an example of an employee who has just joined and forecasted for the future, with amounts calculated based on the current process.

5. I agree with Kumar, stating the worst part is that interest on pension contribution is not applicable. A long period of pension savings under the EPS scheme yields low returns, which is unjustified. Please suggest where we should raise our voice to address this. As a youngster, I am sure I will change firms within 5 to less than 9 years and 6 months. I will opt for withdrawal and invest the lump sum in another source to get more returns, which would exceed future pension returns. What about my situation if I have to stay more than 9 years and 6 months in one organization, where I can't opt for withdrawal as I will be under the bracket of pension eligibility?

Thanks & Regards,
Pavankumar P