Employee Pension Scheme (EPS) 1995

Copy of Copy of Policy Update

Policy Update
Swanami Ghosh

Background 

The Employees’ Pension Scheme, 1995 (EPS-95) is part of India’s social security system for employees in organized sector enterprises, governed by the Central Government through Section 6A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (and is currently effective on November 16th, 1995). The EPS-95 scheme was implemented to provide member pensioners with a continuing source of income on retirement, in the form of pension payments, for life, and for the remaining lifetime of dependents in the case of either death or permanent disability. The EPS-95 pension scheme is also administered by the Employees’ Provident Fund Organisation (EPFO), one of the world’s largest social security institutions. 

An important amendment to the EPS-95 scheme was introduced on September 1, 2014, in which the wage ceiling payments upon which compulsory contribution was based were raised from ₹6,500/month to ₹15,000/month in an effort to bring additional workers into the pension system. The EPS-95 scheme operates through contributions made by the employer, and the Government of India also contributes to the pension scheme.

While the employee does not put up any explicit contribution to the pension fund, 8.33% of the employer’s contribution to EPF comes into the EPS-95, and a further 1.16% is contributed by the Central Government, on behalf of the employee’s contributions. It is extremely important to understand that this multi-stakeholder contribution scheme is the critical funding and sustainability pillar for the EPS-95 retirement benefit.

Functioning 

The EPS-95 is a “defined benefit” scheme supported by contributions from employers as well as the Central Government. Employers pay 8.33% of the basic salary (up to the wage limit of ₹15,000) to the pension fund. The Central Government makes an additional contribution of 1.16% of the pay of the member.

Key benefits and conditions of payment of the scheme are:

  • Superannuation Pension: Can be paid at 58 years of age with 10 years’ service.
  • Early Pension: A pension at a lower rate for retirement between 50 to 58 years of age.
  • Family Pension: Offers financial assistance to the spouse and children of the member in the event of his/her death.
  • Minimum Pension: Assured at ₹1,000 per month, which is subject to deductions for commutation or early pension.
  • Widow Pension: assures 50% of the member’s pension or ₹450/month, whichever is higher.
  • Children’s Pension: assures  25% of the widow’s pension per child (max 2 children).
  • Orphan Pension: 75% of the widow pension if no surviving spouse (max 2 orphans).
  • Permanent Total Disablement Pension:  for members who have become permanently disabled during service, will get a minimum of ₹250/- per month.

Disbursement Conditions:

  1. Pension starts from the date following the member’s retirement, disablement, or death.
  2. Early pension is reduced by 4% for each year the age falls short of 58 years.
  3. Deferred pension increases by 4% for each year beyond 58 years, up to 60 years.
  4. Family pension ceases on the widow’s remarriage or death.

Mode of Disbursement: Through Post Office, Nationalised Banks, or electronic transfer.

How to calculate your pension under EPS

The pension amount in PF depends on the pensionable salary and the pensionable service of the member.

The formula to calculate a Member’s Monthly Pension Income is-

Member’s Monthly Pension = (Pensionable salary x Pensionable Service)/70
  • Pensionable Salary

The average monthly salary withdrawn by the member in the last 12 months before exiting the Employee Pension Scheme in India is the pensionable salary. If there are non-contributory periods in the last 12 months of employment, the non-contributory days in the month will not be considered, and the benefit of those days will be given to the employee.

For ex-If the salary of the person is ₹ 15,000, and he joins the organization on the 3rd of the month, then the salary for that month would be ₹ 14,000 for 28 days (₹ 500 per day less for two days). However, the consideration for the monthly EPS salary would be for 30 days, i.e., ₹ 15,000. So, the amount that has to be deposited in the EPS account of the employee would be 8.33% of ₹ 15000 = ₹ 1250

  • Pensionable Service

Pensionable Service is the actual service period of an employee or member, which is calculated by adding all the services rendered by the member to different employers as well. Every time an employee switches jobs need to submit the EPS Scheme certificate issued to them to a new employer. The employee has to get the EPS Scheme Certificate issued and submit it to the new employer every time they switch jobs.

It is important to note that the employee gets a bonus of 2 years after completing 20 years of service. Before completing the service period of 10 years, if the member withdraws the EPS corpus and joins another company, they will have to start afresh by contributing to the basic EPS account, and he/she has to start fresh as the service period will also be set as zero at the start.

The consideration of the pensionable service period is on a 6-month basis. The minimum pensionable service period is 6 months. The pensionable service period considered is 8 years. If the service period is 8 years 2 months, however, the pensionable service period is taken as 9 years if the service duration is 8 years and 10 months.

Performance

The EPFO has made great strides in modernization in order to improve the performance and accessibility of the scheme in recent years. The major success was the Centralized Pension Payment System (CPPS) commencing from January 2025. CPPS allows pension disbursal through any bank/branch across the country, and pensioners do not need to transfer their Pension Payment Orders (PPO) if they move from one location to another. There was a successful rollout of CPPS with a total of 69.4 lakh pensioners serviced in January 2025 at a success rate of 99.9%.

Impact

The EPS-95 has had a wide-ranging and complex influence on India’s socio-economic profile. More significantly, the scheme provides a vital financial security layer, so that millions of pensioners can live with dignity, without having to completely rely on children or other relatives. Given that pensions are lifelong and fixed, the pension can act in part to diminish the risks of living a lengthy life when faced with economic hardships, especially after retiring. Recent techno-reforms, especially the CPPS, have greatly augmented this role. Recent reforms provide timely and secure pension disbursements.

Pensioners may withdraw their pension from any bank, which has been a terrific relief, particularly for pensioners who change residence from urban to rural (or their village of origin). 

The Supreme Court’s decision concerning elevated pensions and its acceptance of the filing will have a significant bearing on one group of the workforce. The ability for top income earners to be paid a pension based on their full salary instead of the capped amount opens up the possibility of having a substantially higher income after they leave their jobs, entirely changing their financial planning situation. This could also mean more consumer spending and a stronger economy overall. 

However, the impact of the scheme does not come without complications of its own. The minimum pension of ₹1,000 per month, which was pegged to 2014 prices, has proved particularly controversial. Even as it’s an ‘insurance’ against poverty, its predictive ability has been completely diminished (due to inflation) – and many low pensioners struggle to even provide for their basic requirements. The impact is immediate on living standards. The minimum pension should be reviewed.

Emerging Issues

Of its successes, however, the EPS-95 has several that require pressing attention:

  • Inadequate Minimum Pension: The minimum pension of ₹1,000 per month has not been increased since 2014 and remains inadequate to cover the cost of living currently. Pensioner unions have always demanded a hike to at least ₹9,000 per month
  • Challenges with Higher Wage Pension: Roll-out of the Supreme Court ruling has been tardy and convoluted for most. Prospective applicants have complained of delays, and ambiguity on paying arrears, with some being asked for large amounts without full certainty over their final pension payout
  • Bureaucratic Obstacles: Even with digital transformations, pensioners continue to have difficulties with far-reaching documentation and the requirement of old records, which are challenging to obtain
  • Wage Ceiling Restraints: The ₹15,000 wage ceiling for pension contributions is a serious issue, since it keeps a large part of the organized labor force away from increased pension entitlements.

Way forward

This is important work that has to be accomplished at the broadest level. In order to strengthen the EPS-95 and continue its relevance, there will need to be a macro-level consideration. Revising and converting the minimum pension rate to a more realistic amount that reflects the current economic reality is needed. The government may later consider opportunities to increase its contribution to the pension fund, as a way to enhance the fiscal sustainability of the pension fund. The EPFO also needs to work on enhancing the transparency and ease of applying for the higher pension amount, as well as providing improved and sustained communication to the applicants with respect to their pension dues in pensions and/or arrears.

Also, documentation should be simplified, and technology should be used on time by the government, where possible, to minimize administrative and procedural bottlenecks. These problems can, and do, indicate, if resolved, that EPS-95 can be an improved and more balanced social security system, which can be an important contribution toward a new and strong India.

References 

About the Author: Swanami Ghosh, economics undergraduate student in  Miranda House , DU, and a Research intern at Impact and Policy Research Institute (IMPRI)

Acknowledgement: The author sincerely thanks Aasthaba Jadeja and IMPRI fellows for their valuable contribution.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.

Read more at IMPRI:
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