EPFO Pension Rules

For the salaried class, Employees' Provident Fund (EPFO) is not just a savings scheme, but it is a major basis for their future security. Every month a small amount is deducted from your salary and an equal amount is deposited in this fund by your company. Most people see PF as a lump sum amount which can be withdrawn when needed. But there is another, and perhaps more important, part of this contribution, which goes to the 'Employee Pension Scheme' (EPS).

It is EPS that guarantees you a fixed pension every month after your retirement. But in today's fast-paced world, people change jobs frequently. Many times people leave their jobs after working for 10-12 years to start something of their own or for some other reason. In such a situation, the biggest question that arises is what will happen to the money deposited in the pension fund in those 10-12 years? Will that money be lost, or will you benefit from it?

This is the rule of EPFO

The rules of the Employees' Provident Fund Organization (EPFO) are very clear in this matter. Your monthly pension eligibility hinges on a minimum service period, and this period is 10 years. If your total employment (combining one or more companies) is less than 10 years, you will not be entitled to monthly pension. But, if you cross the milestone of 10 years then you become entitled for pension.

Suppose, you worked for 11 years and then left the service. According to EPFO ​​rules, you have become eligible for pension. Your service of more than 10 years has 'locked' your pension. This does not mean that you will start getting pension immediately after leaving the job after 11 years. This means that you have reserved your rights.

The rule says that after completing minimum service of 10 years, you can claim your monthly pension when you complete 58 years of age. That means, even if you leave the job at the age of 40, you will get pension only after the age of 58.

How is your money distributed?

According to the rules, the employee deposits 12% of his salary in the EPF fund. After this your company (employer) also contributes the same amount. This money is divided into two different parts. Out of this contribution, 8.33% goes towards your 'Employee Pension Scheme' i.e. EPS. The remaining 3.67% is deposited in your main 'Provident Fund' i.e. EPF account.

The EPF portion is your main savings, which you can withdraw as per the rules for needs like buying a house, children's education or marriage, or medical emergency. But the 8.33% deposited in EPS is entirely reserved for your monthly pension after retirement. That 10 years service rule applies to this EPS fund.

How is your monthly pension decided?

If you apply for pension at the age of 58 after 10 years of service, how much money will you get every month? EPFO uses a fixed formula for this.

Monthly Pension = (Pensionable Salary × Pensionable Service) / 70

• Pensionable Service: This is the total number of years for which contributions have been credited to your EPS account. (e.g., 10 years, 15 years, or 20 years).

• Pensionable Salary: This is not your last salary. This is decided by the average salary of the last 60 months (i.e. 5 years) of your job. However, this salary also has an upper limit (ceiling), which is currently ₹ 15,000 per month.

Let us understand this with an example. Suppose, your 'Pensionable Service' is 10 years and your 'Pensionable Salary' (average of last 60 months) is ₹15,000.

So your pension will be: (15,000 × 10) / 70 = 1,50,000 / 70 = ₹2,143 (approximately)

This means that on the basis of 10 years of service, at the age of 58 you will get a pension of ₹ 2,143 every month. If you had done this job for 25 years, your pension would have been (15,000 x 25) / 70 = ₹ 5,357 per month.