The explicit goal of Employees’ Provident Fund, or EPF, is to create financial security for employees and their families in advanced age. This security comes in two parts – one, a lump sum payment that is paid at the time of retirement and two, a monthly pension that is also payable at the time of retirement.
The EPF fund is built with 12% contribution of the employee. 12% of the basic + DA of the employee is taken. The same amount of contribution is taken from the employer. However, only 3.67% is put into the EPF account while 8.33% from the employer’s contribution is put in the EPS, or pension account.
What is the EPF pension amount
The amount of monthly pension that will be paid to an employee from the time of retirement is determined by a formula. The formula goes like this: (Pensionable Salary X Pensionable Service)/70. One thing to remember in this connection is that an employee, or EPF subscriber, becomes eligible for pension only after he/she has worked for a minimum period of 10 years and retire after reaching the age of 58.
Significance of ‘Pensionable Salary’ and ‘Pensionable Service’
The two factors ‘Pensionable Salary’ and ‘Pensionable Service’ are significant. Pensionable salary in EPS is the average of an employee’s basic salary and DA over a specific time. It is calculated by determining the averaging the employee’s basic salary + DA over 12 months preceding retirement (or date of exiting EPS).
In EPS, pensionable service refers to the full time period of an employee’s service life for which EPF contributions were made. In other words, it consists of the number of years of service that are taken into account when calculating the pension amount. An employee has to complete a minimum period of 10 years to qualify for monthly pension. This time period is calculated by adding the number of years served under all employers by an employee.
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