Initially, it was Rs 6,500. In September 2014, it was raised to Rs 15,000. Now, the Union ministry of labour and employment has reportedly proposed to the finance ministry to hiking the wage ceiling further to Rs 21,000 for calculating EPF (Employees’ Provident Fund) pension. Obviously, the maximum pension that a retiree would get will increase if the finance ministry approves the proposal. Let’s see how much the pension would increase from the current levels. Employees have been seeking a raise for many years now.
Pension formula
EPS now follows the following formula: Pension = (Average Salary x Pensionable Service) / 70. Here average salary means monthly basic salary + DA (dearness allowance).
The maximum service that is taken in this calculation is 35 years, while the maximum pensionable salary is Rs 15,000. With these numbers the maximum pension from EPFO that one can hope for is Rs 15,000 x 35/70, which works out to Rs 7,500 a month.
New calculation
If the wage ceiling revision is approved, the new EPS pension calculation will work out to be the following: Rs 21,000 x 35/70, which becomes Rs 10,050 a month. In other words, the maximum possible pension would rise by Rs 10,050 – Rs 7,500 or by Rs 2,550 per month, or 34%.
If the labour ministry’s proposal is approved, the contributions to EPF will also change. Now the employer gives 8.33% of the employee’s salary. For an employee with a basic salary of Rs 21,000, the maximum contribution to the account by the employer will rise in the following manner: 8.33% of Rs 21,000 which turns out to be Rs 1,750 every month.
If a youth joins a firm later this year with a monthly basic salary that is equal to or exceeds Rs 21,000, the total contribution to EPF account would be Rs 3,290. Therefore, if the maximum wage is raised contribution to EPF and EPS would rise, which will result in a higher pension from the age of 58, which is the age of retirement.
EPS launched in 1995
The EPS scheme was launched in 1995. One must complete a minimum of 10 years of service in order to become eligible for a monthly pension under the Employee Pension Scheme.
According to reports, the labour ministry has proposed to the financé ministry that the maximum wage for calculation of pension be raised from Rs 15,000 to Rs 21,000. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
