Curious About the '70' in the EPS Formula? Let's Uncover Its Significance Together

Understanding the EPS Formula

The query I am going to ask has already been asked way back in 2008 by one of our fellow members (with 0 replies to date). I am interested in knowing the meaning/significance of "70" in the EPS formula. The formula is pensionable salary * pensionable service / 70. What is this 70? Where has it come from/derived?

Senior/Consultants, please assist.

Regards,
KT

This is the factor decided by the actuary of the fund at the time of the introduction of the scheme. An actuary is a business professional who deals with the financial impact of risk and uncertainty. An actuary has their own method to arrive at the factor scientifically. You and I cannot question them.

This is my specific answer to your query.

Further, I would like to draw the attention of the HR Fraternity to the following:

The factor of 70 was decided in 1995. According to this factor, if an employee puts in their pensionable service of 35 years, they contribute to the pension Rs. 541 x 12 x 35 = Rs. 2,27,220.

This employee will receive a pension of 6500 x 35 / 70 = Rs. 3250 per month.

Suppose this employee invests Rs. 541 per month for 35 years in a recurring deposit (compounded on a monthly basis) at 8% interest, they would get more than Rs. 12,00,000 on maturity. If this employee purchases an annuity plan offering a 7% return out of the maturity amount, according to me, they will receive a pension of more than Rs. 7000 per month.

This factor needs to be revised. The HR Fraternity should take up this matter with the NAMO Government.

Regards

Understanding the EPS Formula

70 is based on 35x2. Here, 35 years of service is the norm for pensionable service, assuming 23 years as the age of joining and 58 as the retirement age, although a person can join at 18 years. This 35 is the denominator for the pensionable service, and 2 is the denominator for the average salary (the pension amount is half of the average salary).