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If you do a private job and are a member of the Employees' Provident Fund Organization (EPFO), you become eligible for a pension, provided that your provident fund contribution is deposited continuously for 10 years. A part of your PF account contribution goes to the Employees' Pension Scheme (EPS) managed by the EPFO.

How much pension is given under the current rules of EPFO

The Employees' Provident Fund Organization introduced EPS in 1995, which was mainly for organized sector employees. To qualify for a pension, your employment tenure should be at least 10 years, and this pension will be available to you after attaining the age of 58 years. Here are the details of how your pension is calculated under the EPFO ​​​​pension scheme.

Current EPFO ​​​​rules

Currently, 12% of an employee's basic salary and dearness allowance is deposited in their PF account every month. The employer also contributes 12%, of which 8.33% goes to the Employee Pension Fund (EPS) and the remaining 3.67% goes to the PF account.

Pension calculation based on current rules of EPFO

Suppose you started working at the age of 23 and plan to retire at the age of 58, which will make your total service period 35 years. Under the old pension scheme, the maximum pensionable salary is ₹15,000. The average monthly salary of the last 60 months before exiting EPS is used to calculate the pension.

Formula: Monthly pension = Pensionable salary x Pensionable service / 70

For example:

Monthly pension = 15,000 × 33 / 70 = ₹7,500

Higher pension option

Last year, the government introduced the higher pension option. Employees who were EPFO ​​members before September 1, 2014, and continued to be members thereafter are eligible for this option. The current maximum pensionable salary is capped at ₹15,000. However, some labour unions have proposed raising this limit to ₹25,000. Government sources suggest it could be raised to ₹21,000. If you choose the higher pension option, the EPFO ​​will adjust the EPS portion from your PF account.

Example based on ₹21,000 basic salary:

Suppose you started working at the age of 23 and retired at the age of 58, making your service period 35 years. If your average basic salary over the last 60 months is ₹21,000:

Monthly pension = 21,000 × 35 / 70 = ₹10,500

If the proposed salary limit increases to ₹25,000:

Monthly pension = 25,000 × 35 / 70 = ₹12,500

(Note: EPFO ​​has not yet released the specific calculation method for the higher pension. The calculation here is based on the previous formula and will be clarified after EPFO ​​provides further details.)

EPFO's main rules for pension eligibility

A minimum of 10 years of service with EPFO ​​contributions makes an employee eligible for pension at the age of 58, or at the age of 50 with a lower amount.

If an employee leaves the job before the age of 50, he or she will have to wait till the age of 58 to claim the pension. If they do not complete 10 years, they can withdraw the entire pension amount.