Find out how much your EPS pension will increase with this Excel calculator if you contribute 8.33% of your full salary (basic +DA) instead of Rs. 1250 per month which is 8.33% of Rs. 15,000 the current salary ceiling mandated by the EPFO. Last week, a 1200% hike in pension for Mr. Praveen Kohli following an October 2016 Supreme court judgement raised eyebrows. When I suggested not to increase EPS Contributions for higher Pension as it may mess up your retirement, many readers promptly ignored it and wanted to know if they are eligible for the pension increase and how much would their revised EPS pension be.

Although I do not recommend it, I am happy to provide details about revised EPS pension. First of all, you need to be a member of the EPS to be eligible for a revised pension. This means that if you are retired and only contributed up to Rs. 1250 per month in the EPS, it is unlikely that will be going to get a revised pension. Simply because you are not eligible for it as you are no longer a part of EPS and there is no employer involved.

What is the proof? This EPFO circular makes it quite clear that if you did not contribute more than Rs. 1250 a month, there is no question of getting a revised EPS pension. This may be an interim decision, but please recognise even if allowed, you will have to pay a substantial sum to the EPFO to get this pension. It may be a good deal for you, but it is a terrible deal for them. Precisely the reason, they are unlikely to allow.

Second of all, if you are in service, and if your salary is above Rs. 15,000 (I would be surprised if anyone with a lower salary reads this!), then you will have to submit an application via your employer to the EPFPO to deduct a sum equal to 8.33% of your basic +DA towards the EPS. The above circular enables this provision.

## How much EPS Pension will I get? The rules

To keep things simple, we will assume that you joined service after 15th Nov. 1995. The pension is calculation is different for older employees (See Bemoneyaware link below).

EPS Pension = (Pensionable annual Salary X Number of Years Service)/70

Pensionable annual salary = average of last 5 years contribution to EPS. This is the key differentiator. Under the old rules, this could not be higher than Rs. 15,000 per year after 1st Sep 2014 and Rs. 6500 per year before that.

Now, *if* you contribute 8.33% of your actual basic+DA, then will be used in the revised EPS pension calculation. See examples below.

The number of Years Service = 10 (minimum eligibility of EPS pension) to maximum 35 years of service. If the service is 20 years or more, 2 years will be added as a bonus.

If the no of years of service is less than 10, you can withdraw the EPS amount. Now does that give you ideas if you increase EPS contributions? 🙂 Of course, if you withdraw, then past service will not be carried forward.

## Example with ceiling salary for EPS contribution

Suppose a person works for 20 years and retires on 1st Sep. 2015 (to make calculations simple).

Pensionable salary = average of last 60 months ceiling salary as applicable.

In the last 12 months before retirement this is 15,000 (1250 a month) and before that it is Rs. 6500 (542 a month)

So we have pensionable monthly salary = [(48 x 542) + (12 x 1250)]/60 = Rs. 684

Pensionable annual salary ~ Rs. 8203 (12 times 684)

EPS Pension = 8203 x (20+2)/70 ~ Rs. 2578

## Example with and without ceiling salary for EPS contribution

Now consider a person retiring on 1st Sep. 2019 after 20 years of service. She applies for enhanced pension and it is set in force from Sep. 2017

From Sep 2013 to Aug 2014: EPS contribution is Rs. 542 a month

From Sep. 2014 to Aug 2017: EPS contribution is Rs. 1250 a month

From Sep 2017 to Aug 2018: EPS contribution is 8.33% of 50,000 (which is her basic +DA, say) = 4165

Pensionable salary =[ (12 x 542) + (36 x 1250) + (12 x 4165)]/60 ~ 1692 (monthly)

Pensionable annual salary = 20,304

Revised EPS pension = 20304 x 22/70 ~ 6382

If the EPS contribution was not increased EPS pension would have been Rs. 4183.

Thus by increasing the EPS contribution to 8.33% of full salary, the monthly pension has increased by about 53%.

Hang on. A sum of 34,980 was “contributed” to the EPS for this higher pension. Is it worth it? In this case, yes the higher contribution was only for one year. So it does not make much of a difference one way or another.

The EPS has to pay an annuity of 6.29% from the 34,980 as extra 2199 pension. That is not a terrible deal for them.

In this case, the extra contribution to EPS was paid only over a year. So there is no time value of money involved. That is, She could not have got much benefits had the money remained in EPF and not shifted to EPS.

You can use the calculator linked below to estimate your EPS pension in this method. This is for those retiring in the near future.

Here is a screenshot

## Projections with and without ceiling salary for EPS contribution

Now let us consider a projection from the first year of employment. This is important because only last 5Y contributions to EPS is used for pension calculation, but the contributions are made from the first year of service. This means that if you are going to retire in the next few years, you can get the benefit of higher EPS pension without losing much to EPS. Please correct me if this understanding is incorrect.

Now consider a person starting with an annual salary of 6 Lakh (basic + DA alone)

The rate at which salary (basic + DA alone) will increase each year = 5%

Years in service = 20

If the EPS contribution was fixed at 15,000 a year, the total contribution over 20 years = 3 Lakh

If the EPS contribution was 8.33% of full basic + da for all those 20 years, the total contribution to EPS = 16.52 Lakh.

The monthly EPS pension at 15,000 celing = 4,714.

The monthly EPS pension at full salary deduction = 36,089

Now had you not invested that mony in EPS and it was left in EPF and if we assume an interest rate of 8% return (you can change these numbers in the calculator), then upon retirement, you will get 28.70 Lakh. This is only the employers contribution. Your contribution is separate and not part of this illustration.

If you are going to take this 28.70 lakh and buy yourself an annuity from a life insurer at 6% rate, you will only get a pension of 14,354. This is only 40% of the EPS pension.

So if your aim is to take the EPF contribution (at least the employers contribution alone) and buy an annuity from it, then enhancing EPS contribution to get the revised EPS pension sound much, much better.

Even if the EPS pension reduced to 50% upon the death of the pensioner, it will still be approximately equal to the annuity pension. The only downside is the annuity pension is returnable (for a lower annuity rate) and this is not possible with EPS.

My guess is that if there are too many requests for enhances EPS pension, the EPFO will go bankrupt.

Hang on, the illustration is not over.

Why would you want to buy an annuity? If you took that 28.70 lakh and invested it in a portfolio offering 10% after tax (not impossible, you can change this in the calculation) and withdrew from it an amount equal to the enhanced EPS pension increasing at 8% a year (inflation), you will be able to provide an inflation-protected income for about 7 years in retirement (remember this is only from the employers contribution, Your contribution corpus + other invests you make remain outside this calculation.).

On the other hand, if you received that enhanced EPS pension, the 8% inflation (you can change it as desired in the calculator) will reduce the purchasing power of this pension by 50% in 8.3 years. The duration for the enhanced withdrawal is almost the same as the duration over which the constant pension drops in value by 50%.

I will leave it to you to interpret these numbers. Most of you will not agree with me but that instead of a constant pension that decreases in value each year, I will opt for more money in hand to invest the way I want. This gives me a better ability to handle inflation and other emergencies.

This love for pension should remind of this: Why have we not seen a retirement crisis in India? and

Caring for elderly parents: An emotional and financial crisis

## Should I opt for Revised EPS Pension?

If you have enough corpus other than this 28.7 lakh to combat inflation and prefer to get a higher pension from EPS pension, then go ahead. The only trouble, you will be paying more tax.

If you do not have enough corpus from other sources and cannot combat inflation anyway, then again get a higher pension from EPS.

There is a middle region between the two choices where this EPF corpus could make a difference to how well you manage inflation in retirement. For them at least, the enhanced EPS pension does not make sense. My advice is to not get overexcited at the prospect of higher EPS pension. Look at both sides of the picture. Download this free robo advisory template, punch in your numbers and then decide how robust your retirement is.

## Screenshots of EPS Pension Calculator in Excel

## Download the EPS Pension Calculator in Excel

## Update on higher EPS Pension

**Higher EPS Pension: Can EPFO pay Higher Pensions or will it go bust?**

## References & Credits

1: Kirti’s fantastic guide to EPS pension calculation at Bemoneyaware

2: Insightful discussions with Ashal Jauhari (FB Group Asan Ideas for Wealth, admin), Chandan SIngh Paidyar (fee-only planner) and Kapil Tiwari

Note: I am an NPS investor and could be wrong in my interpretation. Please check the numbers thoroughly before using. Do let me know asap if any correction is necessary.

## Do check out my books

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Pattu, Can we not contribute higher just for the last five years and get higher salary? After all, everything is linked to number of years of service and salary for the last five years? or Am I missing something?

Yes! I have mentioned in this in the post and it seems incredulous! It makes no sense to opt for higher EPS contribution before the last 5Y. EPS will go bankrupt if even such requests start coming in.

Is this applicable to PF trusts also…we are having our own PF trust…ours is a PSU

Sorry, I dont know. You will have to check with them. They may have a superannuation plan in place.

Very nice and informative article. For matured UTI ULIP is it possible to provide a calculator to find out the amount of LTCG?

why do you need to pay LTCG on a ulip?

I am in this goldilocks zone. I think people with high basic pay (80,000 plus) and planning to (prematurely) retire in the next 3 to 5 years would be interested in this. The calculator shows that if I have a modest 5% basic pay increase the pension would go up 5.5 times to approx Rs. 11,700/- p.m from 2140/-. The additional contribution of around 4.2 lks would be worth it.

Bankruptcy beckons EPS if a lot of people opt for this. This could be the beginning of the end of EPS.

spot on!

Hi, you have mentioned that it is possible to get 10% post tax returns on retirement corpus. I would like to know more about it… is there a post on this already?

Thanks, Anshuman

Yes. Try this free E-book: Post-retirement income generation strategies

don’t think I agree with your conclusion against enhancing EPS pension by reducing the EPF corpus.

The EPF corpus has to be invested by the pensioner when received. When received, the pensioner is unlikely to invest in anything other than safe bank deposits or ultra short term debt funds which will not fetch him anything more than 7%

Whereas being a Defined Benefit Plan, EPS will yield 12% on the amount transferred by depleting the EPF corpus. No bank deposit yields that much or is likely to yield that much going forward in this low interest era.

Of course, the drop in pension t0 50% and 0% on your demise and your nominee’s demise need to be factored in. I haven’t done these calculations, since these are more life expectancy based. I believe if the pensioner survives for 20 years post-retirement and the nominee a further 10 years, it is breakeven.

As far as tax is concerned, bank deposits and pension are both equally taxable. Going forward, with the new Direct Tax Code on the anvil, fewer exemptions likely

let us make sure we don’t die before the breakeven is achieved.

Thanks.. will download..

Is it possible to provide more info about premature retirement case. I read “Early pension—that is an employee receiving after completing 50 years of age but before 58 years—is subject to reducing factor @ 4% (from September 2008) for every year falling short of 58 years. In case of death / disablement, the above restriction is not applicable.

”

How can we factor that in?

Also, if there is already a corpus accmulated in EPF/EPS, can you please help to update the excel sheet to enter the same as well?

Please show me an official reference for this. Accumulated EPS has not link to the EPS pension! Same with EPF.

Awesome article and calculator as always.

Few questions:

1) Is the 15K limit mentioned somewhere for EPS contribution ceiling

2) I assume EPS only comes from employer contribution?

Also, can i request you to add couple of more things to the calculator:

1) Current corpus already accumulated in EPF and EPS

2) Premature retirement before 58 years as i read somewhere “Early pension—that is an employee receiving after completing 50 years of age but before 58 years—is subject to reducing factor @ 4% (from September 2008) for every year falling short of 58 years. In case of death / disablement, the above restriction is not applicable.” but couldn’t understand the calculation for this

1) Is the 15K limit mentioned somewhere for EPS contribution ceiling –> Yes! See EPFO rules.

2) I assume EPS only comes from employer contribution? —-> Yes.