Learn how to boost your pension in the Employees’ Pension Scheme by understanding the calculation process and the importance of key dates to ensure a brighter financial outlook during retirement
The Employees’ Provident Fund Organisation (EPFO) recently issued a circular outlining the calculation process for a higher pension for employees who choose to receive a pension based on their actual salary under the Employees’ Pension Scheme (EPS). The circular distinguishes between those who retired before September 1, 2014, and those retiring after this date, as the calculation method differs accordingly.
Employees Who Retired Before September 1, 2014
For individuals whose pension under the EPS commenced prior to September 1, 2014, the higher pension calculation will consider the average monthly pay received during the contributory period of service in the 12 months leading up to the retirement date or the date of exiting the pension fund membership.
Employees Who Retired On Or After September 1, 2014
Those who retired on or after September 1, 2014, will have their higher EPS pension calculated based on the average salary earned during the contributory period of service over the span of 60 months preceding the retirement date.
Significance Of September 1, 2014
September 1, 2014, holds particular importance, as the government revised the pension calculation formula during this period.
Prior to this date, the average salary over the 12 months before retirement was considered for calculation. However, the government extended the calculation period to 60 months from September 1, 2014, thus resulting in a lower pension for individuals retiring after this date.
New Pension Calculation Formula
The existing formula for determining pension under EPS is as follows: (Average salary of 60 months X service period) divided by 70.
It is important to note that the “average salary” mentioned above refers to an employee’s basic salary. However, for the purpose of calculating a higher pension for those who opt for it, the full actual salary, including allowances, will be taken into account instead of just the basic salary.
Let’s consider an individual named John who became a member of the EPS scheme in April 2010 and intends to retire in November 2035, accumulating a total service period of 25 years (April 2010 to November 2035). This scenario will help illustrate how the average salary is calculated for determining a higher EPS pension.
Retired On Or After September 1, 2014
Since John’s retirement falls after September 1, 2014, the calculation for his higher EPS pension would involve considering the average salary earned during the contributory period of service in the 60 months (five years) preceding his retirement date. Therefore, to determine his pension amount, the average pay John received from November 2030 to November 2035 would be taken into account.
Retired Before September 1, 2014
Let’s suppose John’s retirement date was set for July 2014, before the revision in the pension calculation formula. In this case, the average salary for a higher EPS pension would be based on the average pay John received during the last year of his employment, from July 2013 to July 2014.
By comparing these two scenarios, we can see the impact of the September 1, 2014 revision on the calculation of the higher EPS pension.
Deadline For Applying For Higher EPS
It is crucial to note that the deadline for applying for a higher pension under EPS is June 26, 2023.
Understanding the calculation process for a higher pension under EPS is essential for individuals seeking to optimise their retirement benefits.
By differentiating between those who retired before September 1, 2014, and those retiring after this date, the EPFO aims to ensure fair and accurate pension calculations. It is advisable for eligible employees to review their options and apply for a higher pension before the stated deadline to maximise their retirement income.