Employees can not only secure their future after retirement but can also provide their family with a source of income through the Employees’ Pension Scheme (EPS), which is managed by EPFO.
Provident Fund (PF) savings are one of the best options for financial security of private sector employees after their retirement. The Employees’ Provident Fund Organisation (EPFO) manages the provident fund (EPF) and pension schemes for its members.
The amount contributed by an employee towards their PF account every month not only serves as a retirement corpus but also ensures financial security for the employee’s family with a pension. Both employee and employer contribute an equal amount each every month towards EPF. From the employer’s contribution a share is deposited into the Employees’ Pension Scheme (EPS).
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How does EPFO calculate pension amount?
Maintaining the Employees’ Provident Fund (EPF) account and releasing pensions in due time is the responsibility of the Employees’ Provident Fund Organisation (EPFO). To understand how the monthly pension is calculated for the account holder’s family, first let’s understand how much contribution the employee makes during his employment tenure toward EPF.
Employers deduct 12 per cent of the employee’s basic salary along with dearness allowances, if applicable, and transfer it to their EPF account every month. The employer also contributes an equal amount. The accumulated fund is handed over to the employee at the time of retirement or to their family in case of their death.
From the employer’s contribution, 8.33 per cent goes to EPS and the rest amount is deposited in EPF.
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One will be entitled to receive pensions once they complete 10 years as an EPS member. The pension that will be transferred to the employee’s account after retirement will be calculated using the following formula.
Monthly Pension = (Pensionable salary x Pensionable Service)/70
Here, pensionable salary is calculated as the average salary of the last 60 months. On the other hand, pensionable service refers to the actual service tenure of an employee. Until one’s death, they receive the pension amount as per the formula. However, after their death, their spouse or children (under the age of 25) would be entitled to the pension amount. Further, if the employee dies during his service tenure, the spouse would be entitled to a minimum pension amount of Rs 1,000.
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Who is eligible to receive the pension amount?
If the EPF member has children aged below 25, including biological and adoptive children, they’re entitled to receiving the pension amount. On the other hand, under the “widow” pension, the late EPS member’s pension is provided to their spouse until they remarry. If the spouse and children are not there, the deceased EPF member’s parents will receive the family pension. The spouse is entitled to 50 per cent of the pension amount whereas children are entitled to receive 25 per cent of the widow pension amount.
