The new wage ceiling of Rs 25,000 for mandatory coverage under the Employees’ Provident Fund Organisation (EPFO) came into effect on Thursday. The higher wage ceiling will help many employees get higher retirement benefits, including a higher monthly pension under the Employee Pension Scheme (EPS) after retirement.
The EPS pension is calculated based on the pensionable salary and the number of years of service during which contributions were made to the EPS. The higher the pensionable salary and service years, the higher your monthly pension will be. Pensionable salary is calculated as the average salary drawn in the past 60 months at the time of exit.
The new wage ceiling of Rs 25,000 has just been implemented. Now, employees will need to complete five years of contribution under the new wage ceiling to get maximum benefit from this. Only employees with a basic salary of Rs 25,000 or more will be able to contribute the maximum EPS amount for the maximum EPS pension under the new wage ceiling.
Can you get Rs 12,500 monthly EPS pension under the Rs 25,000 EPF wage ceiling?
Your EPS pension keeps increasing with pensionable service years. So, drawing a monthly EPS pension of Rs 12,500 under the new wage ceiling will depend on your service years, provided your 60-month average basic before exiting the EPS pension fund is Rs 25,000 or more.
As per our calculations, if you have a pensionable service period of 33 years and the pensionable salary is equal to the wage ceiling of Rs 25,000, your estimated monthly EPS pension will be Rs 12,500.
Here, your pensionable service years are 33, but we have computed EPS pension at 35 years, since under the EPS 2026 scheme, after 20 years of pensionable service, two years will be added to your service years as a bonus.
Also Read: Will this EPF insurance limit rise to Rs 10.50 lakh after EPF wage ceiling hike to Rs 25,000?
If you had worked for 33 years of service under the Rs 15,000 wage ceiling, your pension would have been Rs 7,500.
But with Rs 25,000 as the increased wage ceiling, you can get a bigger pension.
| EPS Pension (Old) | EPS Pension (New) | |
| Service Period | Wage Ceiling - Rs 15000 | Wage Ceiling - Rs 25000 |
| 10 years | Rs 2,143 | Rs 3,571 |
| 15 years | Rs 3,214 | Rs 5,357 |
| 20 years | Rs 4,714 | Rs 7,857 |
| 25 years | Rs 5,786 | Rs 9,643 |
| 30 years | Rs 6,857 | Rs 11,429 |
| 33 years | Rs 7,500 | Rs 12,500 |
* Applicable only to employees who will complete next five years of EPS contribution at the new wage ceiling of Rs 25,000
How can you get more EPS pension under a higher wage ceiling?
To receive a higher EPS pension under the Rs 25,000 wage ceiling, you need to know the role of the ceiling in EPS pension calculation.
EPS calculation= Pensionable salary x pensionable service/70
Here, the pensionable salary is the average of the salaries drawn over the last 60 months before exiting the EPS fund. The maximum pensionable salary can be equal to the Rs 25,000 wage ceiling. Since the wage ceiling earlier was Rs 15,000, an increase of Rs 10,000 will help an EPS subscriber draw a higher pension.
Pensionable service is the number of EPS fund contributory years, and 70 is the life expectancy of 70 years, as determined by the government for pension calculations.
Who is eligible to get an EPS pension?
The majority of employees who were EPS members before September 1, 2014, and who have been contributing to EPS based on the wage ceiling will continue to retain their EPS membership. It is to be noted that 8.33% of the old wage ceiling of Rs 15,000, which is Rs 1,250, was being deducted from their employer contribution towards EPS. This contribution will rise to Rs 2,083, which is 12% of the new wage ceiling of Rs 25,000 once it is notified.
As per the earlier rule, any new employee joining an establishment from September 1, 2014, and drawing a basic pay of more than Rs 15,000 per month couldn’t get EPS membership. However, after the wage ceiling hike, employees with a basic pay above Rs 15,000 and up to Rs 25,000 will be eligible to join the EPS 2026 scheme.
After the government’s decision to increase the EPF wage ceiling, employees with a basic salary of Rs 25,000 or below will be required to become EPS members in addition to the EPF. However, they can get an EPS pension only on completion of 10 years of pensionable service.
What will happen to employees retiring within next 5 years?
However, employees who are bound to retire within the next five years will get only partial benefits of a higher EPS pension. The quantum of benefit under the new wage ceiling will be linked to the number of months they spend contributing to it. Nevertheless, to be eligible for an EPS pension, employees must complete at least 10 years of service with EPS contributions.
Frequently Asked Questions (FAQs) about EPS pension
What is the minimum and maximum pension amount subscribers can draw under the EPS?
Puneet Gupta, partner, People Advisory Services-Tax, EY India, told ET Wealth Online that the Employees’ Pension Scheme, 2026 prescribes the formula for calculation of monthly pension, as: (Pensionable wages × pensionable service) ÷ 70. While the scheme guarantees a minimum monthly pension of Rs 1,000, it does not prescribe a fixed maximum pension amount.
Which key factors determine the EPS pension of a subscriber?
Gupta says that for members whose pension contributions are made on the statutory wage ceiling, the pensionable wages considered for pension computation (as per the formula) will be restricted to the ceiling, which now stands at Rs 25,000.
"Consequently, the pension benefit will be limited indirectly through the pensionable wage ceiling. The actual pension payable to a member will ultimately depend on multiple variables, including the pensionable wages, the length of pensionable service and the specific provisions applicable under the Scheme," says Gupta.
