Great news for the employees. Actually, a big update is coming out for the employees from the government. Under which it is being said that the employees will get Rs 10,200 instead of Rs 7,286 as pension.
The Central Government is considering clearing the way for more contribution for the members in the Employees’ Provident Fund (EPF) and Employees’ Pension Scheme (EPS). For this, there is a plan to increase the salary limit from Rs 15 thousand to Rs 21 thousand.
Last time in September 2014, the central government increased the salary limit from 6 thousand to 15 thousand. If the salary limit is 21 thousand, EPS and EPF members will get a chance to contribute more, so that after retirement, instead of 7 thousand rupees, they will get a pension of more than 10 thousand rupees per month.
Pension contribution amount will increase if salary cap is removed
Currently, contribution to the Employees’ Pension Scheme (EPS) account is calculated by capping the basic salary at Rs 15,000 per month. 8.33 per cent of the basic pay goes to the EPS account, with a maximum contribution of Rs 1,250 per month. This contribution will increase if the government increases the salary limit to Rs 21,000.
Mallika Noorani, Senior Partner, Result Law Associates, says that if the salary limit is 21 thousand, the monthly EPS contribution will be Rs 1,749, which is 8.33 percent of Rs 21,000.
12% contribution in EPF account-
According to the Employees Provident Fund and Act 1952, both the employee and the employer contribute equally 12 percent of the basic salary, dearness allowance to the EPF account. The entire contribution of the employee is deposited in the EPF account. Whereas, out of 12 per cent employer’s contribution, 8.33 per cent is deposited in the Employees’ Pension Scheme and the remaining 3.67 per cent is deposited in the EPF account.
Formula for calculation of employee pension-
With the increase in the salary limit under the EPF scheme, the pension amount at the time of retirement will also be higher. The formula for computing the EPS pension as per the Employees’ Pension (Amendment) Scheme 2014 is – (Number of years of pensionable service X60 Average monthly salary for the months)/70.
Noorul Hasan, partner, Laxmikumaran Sreedharan Attorney, says that if the salary limit is increased to Rs 21,000, then the pension amount will increase. Understand this with an example- The pensionable service period of an employee is 32 years. Monthly salary will be calculated taking the average salary of 60 months before retirement.
However, if the employee’s basic pay exceeds Rs 15,000 per month during 60 months, then Rs 15,000 will be considered as one month’s pay for computing pension. Apart from this, if an employee has worked for more than 20 years, then 2 years are added as bonus in the service period. The monthly pension received by the EPS member will be Rs.7286, i.e. (34×15,000)/70.
Pension will be Rs 10,200 instead of Rs 7286-
If the salary limit is increased by the Central Government, then the average monthly salary for the purpose of calculation will be Rs.21,000. In such a case, the monthly pension received by an employee will be Rs.10,200. ie (34×21,000)/70. Therefore, an increase of Rs 6,000 in the pay limit increases the monthly pension by about Rs 2,900. Meaning, EPS members will start getting Rs 10,200 instead of Rs 7286 as monthly pension.
