The Employees Provident Fund Organisation (EPFO), India, is a provident fund institution working under the Ministry of Labour of the Central Government. It is one of the largest such institutions in the world if we take into consideration the number of the contributors it has and the financial transactions it undertakes on a day to day basis
It mainly runs three schemes:
(1) Employees Provident Fund Scheme, 1952
(2) Employees Deposit Linked Insurance Scheme, 1976, and
(3) Employees Pension Scheme, 1995.
Under the Employees pension scheme, 1995, a member becomes eligible for pension with ten years contributions to the Pension Fund provided he reaches a superannuation age of 58 years. The pension is also granted to the members at the reduced rates if a member leaves an organization on completing the age of 50 years. Those below the age of 50 years can withdraw their pension fund with interest or take a pension certificate which they can produce to the EPFO on reaching the age of 50 years or superannuation whatever the case may be, for sanction of pension. Those members, who do not complete minimum ten years contribution and leave an organization, are allowed to claim the withdrawal benefit of the pension funds with the accrued interest thereon.
My question is to know the formula for working out the pension of the employees, since the different members may leave an organization at different periods of service. For example a member may join the scheme at the age of 40 years and he completes 10 years of contribution and leaves the organization on completion of 50 years of age. What is the formula used to calculate the pension of such members. How will the pension be calculated if the employee retires from the organization on superannuation, i.e. on completing 58 years of age?
|Author: Haridas 02 Jan 2013 Member Level: Gold Points : 10 (Rs 10) Voting Score: 2|
If we want to calculate an employees pension we will have to consider his service, his date of birth, his date of joining, his date of leaving his salary and his pensionable salary whether it is statutory calling of rs. 6500 or opted to contribute on actual salary.
The Employees pension scheme came into force on 16 Nov 1995 so will consider of an employers service. We can divide the service in the following two parts;
(1) service that is done before 16.11.1995
(2) service that is done after 16.11.1995
Service that is done before 16.11.1995 is called past service and it is divided into four categories.
(1) service unto 11 years.
(2) service 12 to 15 years
(3) service 16 to 19 years.
(4) service 20 and above
According to employees pension scheme 1995, a fix amount is determined for past services that is as follows:
(1) If an employees salary is below 2500 on date 16.11.1995, the fix amount will be as follows:
(a) Rs. 80 - for the services unto 11 years
(b) Rs. 95 - for the service 12 to 15 years
(c) Rs. 120 - for the service 16 to 19 years
(d) Rs. 150 - for the service 20 and above
(2) But if an employees salary is Rs 2500 and above the fix amount will be calculated as follows:
(a) Rs. 85 - for the service unto 11 years
(2) Rs. 105 - for the service 12 to 15 years
(c) Rs. 135 - for the service 16 to 19 years
(d) Rs. 170 - for the service 20 and above
The above fixed amount is for those members who has attained 58 years on 16.11.1995
If any employees attains his 58 years after 16.11.1995, his fix amount will be multiplied by a factor stipulated in table B according to the difference between 16.11.1995 and the date of completion of 58 years.
Pension Formula: According to Employees pension scheme 1995 the pension for the service rendered after 15.11.1995 is calculated through the following formula:
Pensionable salary*pensionable service/70
What is pensionable salary: Pensionable salary is the amount on which the pension is given to an employee. The pensionable salary is divided into the following three ways:
(1) Salary that is below Rs. 6500
(2) Salary that is Rs. 6500 and above but contribution of statutory calling is Rs. 6500
(3) Salary that is above Rs.6500 and opted to contribute on actual salary.
In point 2 the pensionable service is Rs. 6500 but in point 1 and 2 the pensionable service will be the average of last 12 months .
If an employees has completed his 20 years and above of his service he will be given 2 years bonus.
We can understand the above scheme by the following example:
Date of birth - 03.02.62
Date of joining - 24.03.1988
Salary on 16.11.1995 - Rs. 2500 and above
Salary on completion of 58 years on 01.01.2019. Rs. 6500 ( statutory calling)
Past service - 8 years 9 months, rounded to 9 years
compensation will be Rs. 85.
Factor as per table B( for less than 24 years i.e. The difference between 16.11.1995 and 02.02.2020) - 6.102
Past service benefit 85*6.102 = Rs.519 - A
Pensionable service - 23 years
Bonus(service is 20 years and above) -2 pensionable salary
Pensionable benefit - 6500*25/70 = 2321 - B
Total Pension A+B= 519+2321=2840