Changes to Employee Pension Scheme

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Changes to EPS 

The Employee Pension Scheme, which runs parallel to the EPF, is also likely to see some changes. At present, employees earning up to Rs 15,000 a month are eligible for a minimum guaranteed pension of Rs 1,000 per month after retirement. All members become eligible for pension after 10 years of contribution to EPS.

While employees contribute 12% of the basic pay to EPF, the employer has to make a matching contribution, divided into two parts:

1) 8.33% of the basic pay is directed towards EPS—subject to a cap of Rs 15,000—and

2) the remaining 3.67% is parked in EPF.

The labour ministry may enhance the wage ceiling from Rs 15,000 to Rs 21,000. The retirement body is also considering doubling the minimum monthly pension for EPS subscribers to Rs 2,000. 

While this will bring more subscribers into the pension net, it is still too meagre an amount. As per the current structure, pension is fixed based on the following formula: Average salary for the last 5 years x number of years completed in service / 70. Since the definition of salary is restricted to Rs 15,000, the maximum contribution works out to Rs 1,250 per month (8.33% of salary). This will climb up marginally to Rs 1,750 if the wage ceiling is enhanced to Rs 21,000. 

Besides, the final pension is also computed on this wage ceiling, which puts a cap on the pension amount. Assuming an employee has served 35 years, the maximum monthly pension he can get today is Rs 15,000. Currently, there are around 60 lakh pensioners under the EPF-95, of which around 40 lakh are getting less than Rs 1,500 per month as pension. 

 

 

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