EPS 95: Higher Pension Scheme – Is it Good to Apply for Higher Pension Scheme or Not?

What is the Employee Pension Scheme 1995?

The Employee Pension Scheme 1995, often known as EPS 95, is a social security program that was introduced on November 19, 1995, by the Employees’ Provident Fund Organization. After retirement, this program offers pension benefits to employees in the organized sector. The scheme is managed by EPFO, which also ensures that workers who have attained the age of 58 will get a pension.

Today we are going to look at the calculation method of the Employee Pension Scheme and also about the new Higher Pension Scheme option introduced in 2024 and the new method of calculation.

Let’s get started!

Table of Contents

1.)Employee Provident Fund an Intro
2) How to Check Your EPF Balance?
3.)Long Story Short
4.)Employee Pension Scheme Calculation – Illustration
5.)Impact of opting for the Higher pension option
6.)Individual Standpoint
7.)Nutshell

1. Employee Provident Fund – An Intro

Currently, the employee and employer contribute 12% of their basic salary and dearness allowance to the Employee Provident Fund (EPF). The Employees’ Pension Scheme (EPS) receives 8.33% of the employer’s 12% payment, while the Employees’ Provident Fund (EPF) receives 3.67%.

2. How To Check Your EPF Balance?

You have two options for checking your EPF balance online:

Through the EPFO website: Visit the official website of the Employees’ Provident Fund Organisation (EPFO) and log in using your UAN and password. Make sure your mobile number is registered with EPFO for verification.

Through the UMANG app: Download and install the UMANG app on your smartphone. Register or log in using your UAN and enter the OTP sent to your registered mobile number. You can then view your EPF balance within the app.

Both methods require you to have your UAN and a registered mobile number.

3. EPS 95 – Long Story Short

1995: The Employee Pension Scheme (EPS) (कर्मचारी भविष्य निधि पेंशन योजना 1995) was introduced as a part of the Employees’ Provident Funds (EPF). The employer’s contribution of 8.33% of 5000 should be towards the pension scheme.

Read this article “All you wanted to know about Employee Pension Scheme (EPS)” for more clarity.

March 1996 – A clause was inserted into paragraph 11(3) of the EPS-95, allowing the employer and employee to choose whether to contribute 8.33% of the employee’s actual wage to the EPS (beyond the limit of Rs. 5,000 or Rs. 6,500). Such a greater wage would qualify as a pensionable wage.

September 2014 – It increased the maximum pensionable salary to Rs.15,000 (earlier pensionable salary – 6,500). It was also left out of the provision to para 11(3) i.e., Only the cap amount of ₹ 15,000 is taken for calculation and not the actual salary.

2024 – Employees are given an option to opt for a higher pension. Here, instead of a cap amount of ₹ 15,000, the actual salary is taken as pensionable salary.

4. Employee Pension Scheme Calculation – Illustration

Let us understand this Employee Pension Scheme Calculation and Higher Pension formula change with the help of actual figures

The calculation of An employee’s Basic Salary + Dearness Allowance results in 75,000. The following table depicts the calculation of the Employer’s contribution alone as there is no confusion about the employee’s contribution. Employee’s contribution directly goes to the EPF account.

EPF Pension Calculator:

Employer’s contribution	Earlier	New
Employee Pension Scheme (8.33%)	1250	6250
Employee Provident Fund (3.67%)	7750	2750
Total (12%)	9000	9000

In the earlier method, whatever your salary, a constant amount of ₹ 1250 (8.33% of 15000) gets into the EPS account. The balance goes into the EPF account ((12%*75000)-1250).

In the new method, the actual salary is taken for calculating the EPS contribution. A major portion goes into the EPS account and the balance goes into the EPF account.

If you opt for the new higher pension, there is a change in the pension calculation that you receive after retirement. Let us look into EPS 95 higher pension formula:

New method = Pensionable salary (average of last 60 months’ salary) x number of years of contribution / 70.

Old method = Pensionable salary (average of last 12 months’ salary) x number of years of contribution / 70.

5. Impact of Opting for the Higher Pension Option

Take-home salary – There will be no impact on net salary.

EPF and EPS – Once you opt for a higher pension option, it has a retrospective effect. So, calculations are done from the date of joining and the difference is transferred from the EPF account to the EPS account. This involves some nominal administrative charges.

After such a transfer, your EPF account balance would have been reduced. EPS balance would have risen, thereby getting a higher pension during the post-retirement period.

6. Individual Standpoint

So far, we discussed the amendments and the calculation to understand their effect. What should be your final decision? What happens if you opt for a Higher pension scheme?

If you exercise this option, obviously you will be eligible for a higher pension. But the point here is, that the contribution to EPS will be higher. Eventually, contribution to EPF will be reduced.

• EPS – You won’t be allowed to withdraw the EPS balance. You are eligible for a pension as calculated above. Your pension is fully taxable. You get the same pension amount throughout your lifetime. After your lifetime 50% of your pension is available to your spouse. Even it is extended to kids – 25% of pension for each kid up to a maximum of two kids till the age of 25 years.
• EPF – At the time of retirement, the EPF balance is available to you as a lump sum amount. You can add this to your retirement Kitty. It is fully exempt from tax. The current rate of interest on EPF is 8.1%. If you make a higher contribution to EPF during your working years, you can accumulate a bigger retirement corpus. The longer the period, the better it compounds.

If you opt for this higher pension plan, the only advantage is you get a pension. If the last five years’ salary is low due to unavoidable reasons, then you may receive a lesser pension. Here, pension is not calculated based on your accumulation in the EPS account, but ratherbased on the last drawn salary.

Meanwhile, till your retirement, there might be amendments in the act. Even, if the same rule applies, the pension amount will be miniscule owing to inflation. On the other hand, EPF balance will be low.

A higher pension through EPS leaves you with no liberty with your money. Accumulating the corpus through EPF will leave you with an ‘N’ number of options.

As financial planners, we insist on accumulating retirement corpus through EPF. Here, you have an option to invest in a diversified portfolio to take care of your post-retirement needs. You have various options to invest your retirement corpus like Senior Citizen Savings Scheme, Mutual funds, and RBI floating rate bonds.

7. Nutshell

We recommend you continue with the current EPS contribution (₹1250) and accumulate corpus through EPF where you get better interest. Also, you will be open to many options to invest your corpus as you wish at the time of retirement. From a tax perspective, continuing your current EPS contribution is advisable. Opting for a Higher pension scheme is of no use.

Instead of going for Readymade Pension Plans just by searching social media platforms like Quora, Facebook, Twitter, etc… It is better to handle your retirement corpus on your own or through professional financial advisors.