The Employees’ Provident Fund Organisation (EPFO) has introduced a new salary limit of ₹25,000 for mandatory coverage, replacing the earlier ₹15,000 limit. The change could increase the pension benefits available under the Employee Pension Scheme (EPS) for eligible employees.
Under the revised system, employees who want to receive the maximum benefit based on the new salary ceiling will need to make EPS contributions based on a salary of ₹25,000 for five years. The maximum pension benefit under the revised limit will apply to employees whose salary is ₹25,000 or more.
For salaried employees, a Provident Fund (PF) account plays an important role in retirement planning. The EPFO manages these accounts, while the EPS provides a monthly pension after retirement to eligible members.
The amount of EPS pension depends mainly on two factors: pensionable salary and pensionable service. Generally, a higher pensionable salary and a longer contribution period result in a higher monthly pension.
Pensionable salary is determined using the average salary earned during the 60 months immediately before an employee exits the EPS.
EPS Pension on a ₹25,000 Pensionable Salary
The pension payable under EPS increases with the length of pensionable service. Therefore, employees looking to receive the maximum benefit under the new ₹25,000 salary limit need to have a basic salary of ₹25,000 or more during the relevant 60-month period before leaving the scheme.
For example, if an employee has 33 years of pensionable service and a pensionable salary of ₹25,000, the estimated monthly EPS pension could be ₹12,500.
In this calculation, the effective pensionable service is considered as 35 years even though the employee has completed 33 years. This is because an additional two years of service is added as a bonus after completing 20 years of pensionable service under the EPS 2026 calculation mentioned above.
The difference between the earlier ₹15,000 salary ceiling and the new ₹25,000 limit can also be seen across different service periods. For 10 years of service, the estimated pension based on the earlier limit was ₹2,143, while the calculation under the ₹25,000 limit could result in ₹3,571.
For 15 years of service, the estimated pension could increase from ₹3,124 under the earlier limit to ₹5,357 under the new limit. With 20 years of service, the corresponding figures could be ₹4,714 and ₹7,857.
For 25 years of service, the pension could rise from approximately ₹5,786 under the old limit to around ₹9,643 under the new ₹25,000 ceiling.
An employee with 33 years of service and a salary below ₹15,000 could receive a pension of around ₹7,500. Those earning more than ₹25,000 may qualify for a higher pension, depending on the applicable calculation and service period.
EPS Pension Calculation Formula
The EPS pension is calculated using the following formula:
EPS Pension = Pensionable Salary × Pensionable Service ÷ 70
Here, pensionable salary means the average salary during the 60 months before the employee exits EPS. Under the revised system, the maximum pensionable salary considered for this calculation can reach ₹25,000.
The earlier pensionable salary ceiling was ₹15,000, meaning the new limit represents an increase of ₹10,000. This higher ceiling can allow eligible employees to receive a larger pension.
Pensionable service refers to the number of years for which an employee has contributed to the EPS. The calculation uses 70 as the denominator, based on the government-prescribed formula.
Who Can Get EPS Pension Under the New Limit?
Employees who were members of the EPS before September 1, 2014, and were contributing according to the applicable salary ceiling can continue their EPS membership.
Earlier, 8.33% of the ₹15,000 salary limit, or ₹1,250, was allocated to EPS from the employer’s contribution. With the new ₹25,000 limit, this amount would rise to ₹2,083, representing 8.33% of ₹25,000.
Employees who joined after September 1, 2014, and had salaries above ₹15,000 were previously not eligible for EPS membership. Following the increase in the salary ceiling, employees earning between ₹15,000 and ₹25,000 will now be able to join the EPS.
Under the revised provision, employees earning ₹25,000 or less will be required to become EPS members along with their EPF membership. However, an employee must complete at least 10 years of pensionable service to qualify for an EPS pension.
What Happens If Retirement Is Within Five Years?
Employees who are due to retire within the next five years may not receive the full benefit of the increased ₹25,000 salary ceiling.
Instead, the additional pension benefit will depend on how many months they contribute under the revised salary limit. A longer contribution period under the new system can result in a greater benefit.
Therefore, employees approaching retirement should note that the full impact of the new salary ceiling requires contributions based on the revised limit. At the same time, the minimum requirement of 10 years of pensionable service and EPS contributions continues to apply for receiving an EPS pension.