The Employees’ Provident Fund Organization (EPFO) has recently issued a circular outlining the calculation method for higher pension benefits under the Employees’ Pension Scheme (EPS).
The circular explains that the formula for determining the increased pension will vary depending on whether an employee retired before or after September 1, 2014.
The deadline for applying for the enhanced EPS pension is June 26, 2023.
For Employees Who Retired Before September 1, 2014
If an eligible individual’s pension commenced before September 1, 2014, the calculation of the higher pension will be based on the average monthly salary earned during the 12 months of contributory service immediately prior to the date of superannuation,
which is the exit from the Pension Fund membership.
For Employees Retiring on or After September 1, 2014
For those who retired or will retire on or after September 1, 2014, the higher EPS pension will be determined by considering the average pay during the 60-month contributory service period preceding the retirement date.
Why is September 1, 2014, Significant?
It is important to understand that the government revised the pension calculation formula in September 2014.
Previously, until August 31, 2014, the average salary during the 12 months preceding the retirement date was used in the calculation.
However, starting from September 1, 2014, the government extended the period to 60 months.
Consequently, this change led to a reduction in the pension for individuals retiring on or after this date.
Currently, the pension calculation formula under the EPS scheme is (average salary over 60 months X service period) divided by 70.
It should be noted that the “average pay” refers to an employee’s basic pay.
However, for those opting for a higher EPS pension, the calculation will be based on the employee’s full actual pay, including allowances, instead of just the basic pay.
An Illustrative Example
To better comprehend the calculation method, consider the following scenario: Suppose you joined the EPS scheme in October 2008, and your retirement is scheduled for September 2033,
resulting in a service period of 25 years (October 2008 to September 2033).
The average salary for pension calculation purposes will be determined based on the average salary of the last five years (60 months) of your employment.
If you retired on or before August 31, 2014, the average salary for the higher EPS pension calculation would be based on the average salary from the last year of service.
