What is Employee Pension Scheme (EPS)?

Created on 21 Apr 2021

Wraps up in 5 Min

Read by 3.2k people

Your CTC is not your salary. You have many components that make up your CTC, and one major component among them is your pension. And we must know about it.

While a portion of what we earn is constantly diverted to this account, we hardly possess the knowledge of how it functions. To add on, the employee pension scheme occupies a big pie of the savings in most households. That being the case, it is crucial that you understand how to use it.

What is Employee Pension Scheme?

The employee pension scheme made its way in 1995, intending to offer basic financial security to the employees. The Employees Provident Fund Organization (EPFO) came up with this scheme. The scheme offers a reliable source of income in the form of a pension after retirement, which is after 58 years of age. A person who is part of the EPF can also avail of the benefits of this scheme.

Furthermore, you will have to be in service for a minimum period of 10 years to avail of the scheme. Apart from that, the employee and employers share an equal contribution, as in the case of the EPF. Furthermore, the employee does not and cannot make any contribution to the Employee Pension Scheme. Only the employer is eligible to do the same. The breakup of the contribution made by different parties to your EPS is as follows -

  • Employer's contribution – 8.33% (the rest 3.67% goes to your PF) 

  • Government’s contribution – 1.16% 

Eligibility criteria for EPS 

All of the following criteria have to fulfilled to avail the benefits of the Employee Provident Scheme:

  • The person should be a member of the Employees Provident fund organization. 

  • Though not continuously, the person should hold a minimum service period of 10 years, i.e. the duration you served the organization. 

  • In case you have failed to avail of the benefits by the age of 58 and a year or two passes, you will be allowed to avail of the pension at an additional rate of 4% per year.


We might often get confused between the two. Let's see what they are





  • Employee – no contribution 

  • Employer – 8.33% of salary + DA

  • Employee – 12 % of salary + DA 

  • Employer 3.67% of the salary + DA


Up to 1250 per month 

No limit 


Can make an early withdrawal if the total service period is less than 10 or the individual has attained 58 years of age.

Can be withdrawn at any time. But the withdrawal before completion of 5 years of service will invite tax on the same.


The regular monthly pension is paid. 

Lump-sum is paid at retirement.


Calculation of EPS 

This is the part where most of us find trouble in deducing. EPS is usually calculated in two ways. And the second one is where most of us fall under. However, we will be looking into both of them

  • The first one is for those who joined the scheme before 16 November 1995. 

  • Secondly, for those who joined after 16 November 1995.

Joined before 16 November 1995

The pension amount is fixed and is based upon the salary received. The following table shows the pension based on the years of service. 

Number of years of service 

If the salary received is 2500 or less (in Rs) 

If the salary received is more than 2500 (in Rs) 

10 years



11 – 15 years



15 – 20 years 



More than 20 years 




Joined after 16 November 1995

Here the pension is calculated by using the pensionable salary and pensionable service. And the formula to arrive at the same is, 

Monthly EPS pension = Pensionable salary (annual) * pensionable service (in years) /70 

Pensionable salary:

Pensionable salary is the average of the last 12 months salary which the individual received. In case the individual joined the work on the 15th of a particular month, he would have worked only for 15 days. In such a case, the employee receives the benefit of any such non-contributory day. That is, say; he received 15000 for 15 days. But for the calculation, the entire 30-month salary will be taken, which will be 30,000 in the above scenario. 

So the pensionable salary will be, 

= 30,000 (monthly salary ) * 8.33% (EPF contribution of employee) 

Monthly pensionable salary = 2499

So the annual pensionable salary of the individual is 29,988 (2499 *12)

Pensionable service:

This is the duration during which the employee serves or works. If an employee withdraws the entire corpus before fulfilling the minimum 10 year period, he will have to restart the whole process. If any employee has completed 20 years of service, two years will be added to his serviceable period (20+2) as a reward. 

For pension calculation, the bar is set as six months. Let's look at these criteria with an example. 

  • You have completed 10 years and 2 months; then the total pensionable service period is 10 years. 

  • You have completed 10 years and 7 months; then, the total pensionable service period is 11 years. So when you cross 6 months, it is considered 1 year and anything less is not considered. 

So monthly EPS pension receivable is calculated as follows, 

=29,988 (annual pensionable salary as calculated in the previous scenario) * 15 (assumed pensionable service year) / 70

Which gives you Rs 6,426.

Special circumstances under EPS:

Some of the circumstances that an individual might encounter and the rules will then be explained in detail. Read further to find out. 

  • Switching employer: If you are switching companies, you are required to carry the scheme certificate from EPFO and provide it to your new employer. 

  • In the case of widow/widower: After an individual has died, the pension will be directed to his spouse. The disbursal of the same takes place under the EPF scheme. The amount which is provided is based upon the salary of the individual. However, the minimum amount is fixed as 1000. 

  • Child of the deceased: The child of the deceased employee will get a maximum of 25% of the pension which is offered to the widow. He will be receiving a pension until 25 years of age.

  • Orphan child: A child of the deceased wherein both the parents are dead or the surviving spouse has remarried will be considered an orphan. Here the child will be entitled to a pension of 75% of that of the widow pension. 

  • Physically challenged: However, a physically challenged child will be receiving a pension till his death.

  • Physically disabled child: Under any circumstances, if the employee withdraws a portion of his or her pension, the pension amount will be called a reduced pension, and the pension itself will be reduced at a rate of 4% per annum. 

  • Minimum salary receiving individuals: Those getting a salary of 15000 or less will have to enrol under this scheme compulsorily.

To sum up

You see, there are several tools at your disposal to facilitate a planned and happy retirement life. It does make sense to avail of them if you aren't actively into the markets.

Having understood how the entire EPS system works, ensure you utilize it to obtain maximum benefit and have a secure and happy retirement!

comment on this article
share this article
Photo of Ayushi Upadhyay

An Article By -

Ayushi Upadhyay

200 Posts


149 Post Likes


A Keen Learner. Tiny, brainy, and studious, this quiet one stays in her zone until she pops. And once she does, boy, are her comebacks snappy! There is no financial question that she can't answer through her magical blog-writing. 

Topics under this Article

Share your thoughts

We showed you ours, now you show us yours (opinions 😉)

no comments on this article yet

Why not start a conversation?

Looks like nobody has said anything yet. Would you take this as an opportunity to start a discussion or a chat fight may be.

Under Invest

"A few" articles ain't enough! Explore more under this category.

Share this post
share on facebook


share on twitter


share on whatsapp


share on linkedin


Or copy the link to this post -

copy url to this post