In private sector jobs, the salary being credited to the bank account every month may be a great comfort, but life after retirement often brings uncertainty. Unlike government employees, there is no fixed guaranteed pension system in the private sector, due to which it is natural to be worried about future financial security after a lifetime of hard work. However, if you are an active member of the Employees Provident Fund Organization (EPFO) and PF is deducted from your salary every month, then this worry is reduced to a great extent. Especially for those people who are planning to retire from their working life in the year 2026, it is very important for them to know today how much amount they will get every month under the Employee Pension Scheme (EPS) after the end of the job.
How does PF become a guarantee of retirement?
Most of the private sector employees have the misconception that the money deposited in the PF account is just a lump sum savings, which will be received together on the day of retirement. In reality the economics behind it work a little differently. The portion deducted from your basic salary is directly deposited in your Provident Fund (EPF). Parallel to this, an equal contribution is made by your company, but a large part of that company contribution is transferred directly to your pension account (EPS). This is the accumulated capital that gradually accumulates during your working years and becomes a strong source of income for you every month after retirement.
Necessary conditions to become eligible for pension
To avail monthly pension from EPS, an employee has to fulfill some basic conditions. The first and essential condition is that the employee should have completed at least 10 years of ‘pensionable service’ in his career. Without this minimum period, pension benefits are not available. Apart from this, it is considered necessary for the employee to be 58 years of age to avail the full pension amount without any deduction.
Calculate yourself using this easy formula
You do not need to go to a financial advisor or a chartered accountant to get an accurate estimate of your monthly pension. EPFO has fixed a very transparent and simple formula for pension calculation.
The formula is: (Pensionable salary × total years of service) / 70.
It is important to understand a technical nuance here. As per the current EPFO rules, the maximum salary (Basic plus Dearness Allowance) for calculating pension has been fixed at Rs 15,000 per month. This simply means that even if your current basic salary is in lakhs, the entire mathematics of your pension will be calculated on the basis of this maximum limit of Rs 15,000. ‘Years of employment’ means the period during which you have actively contributed to the EPS.
There can be huge losses due to age.
This entire mathematical process can be easily understood with the example of an employee named Kanhaiya. Kanhaiya is going to retire in the year 2026. Suppose the total period of his EPS contribution at the time of retirement is 50 years. Since the maximum salary limit is fixed at Rs 15,000, his pension will be calculated like this: 15,000 (salary) × 50 (years of service) ÷ 70. According to this calculation, Kanhaiya will get a fixed pension of around Rs 10,714 every month after retirement.
However, retirement age is a big factor in this entire scheme. If Kanhaiya does not wait for the completion of 58 years of age and starts his pension at the age of 50, then he will have to suffer a huge financial loss. Under EPFO rules, if premature pension is started before 58 years, there is a huge reduction of 4 percent in the total pension amount every year.
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