EPS Pension Formula in Dispute: What You Need to Know!
- tax comply
- Mar 5
- 3 min read
The Employees’ Pension Scheme (EPS) has been at the center of a major dispute regarding higher pension eligibility and calculation methods. The EPFO (Employees' Provident Fund Organisation) has divided the service period into pre- and post-September 1, 2014, leading to contention among pensioners.
This issue is currently pending in the Kerala High Court, and its outcome will have significant financial implications for many retirees. Here’s everything you need to know:
🔹 How PF Contributions Work
Contribution Type | Amount (For Basic Salary ₹1,00,000) |
Employee Contribution to EPF (12%) | ₹12,000 |
Employer Contribution to EPF (12%) | ₹12,000 |
Employer Contribution to EPS (8.33% of ₹15,000) | ₹1,250 |
Employer Contribution to EPF (Remaining Amount) | ₹10,750 (12,000 -1250) |
👉 Higher EPS Pension means contributing based on actual wages instead of the capped ₹15,000 limit. However, EPFO discontinued this option on September 1, 2014, allowing it only for those who had already opted for it.
🔥 The Dispute: What’s Happening?
⚖ PF members went to court challenging the 2014 notification, seeking higher pension based on actual wages.
⚖ Supreme Court ruled in favor of pensioners in November 2022, allowing a one-time window to opt for a higher pension.
⚖ EPFO, however, introduced a pro-rata formula, which has lowered pension calculations
⚖ Case now pending in Kerala High Court as members dispute EPFO's formula.
🔹 EPFO’s Pension Calculation Formula
📌 Monthly Pension = (Pensionable Salary × Pensionable Service) / 70
📌 EPFO’s methodology (Pro-rata basis)
Step 1 Calculate pensionable salary before Sep 1, 2014
Lower of highest monthly salary during this period or average salary of 60 months preceding this date
Step 2 Calculate pensionable salary after Sep 1, 2014
Lower of highest monthly salary during this period or average salary of 60 months preceding the retirement date
Step 3 Determine service period in days (excluding non-contributory periods)
Step 4 If total service exceeds 20 years, add 2 extra years to the pre-2014 period
Step 5 Compute the monthly pension separately for both periods and add them
🚨 Issue: Many pensioners argue that EPFO should not split the service period and must consider full service under the old formula.
Example:
👨💼 Employee Details:
✔ Joined Service: January 1, 1990
✔ Retired: January 1, 2024 (Total Service: 34 years) – Opted for Higher Pension
✔ Average Monthly Salary (Last 60 Months Before 2014): ₹25,000
✔ Average Monthly Salary (Last 60 Months Before Retirement): ₹50,000
CASE A – Pension calculation as per EPFO
📌 Step 1: Calculate Pensionable Salary for Pre-September 1, 2014 Period
Lower of highest monthly salary OR 60-month average salary
· Here, the lower value is ₹25,000
📌 Step 2: Calculate Pensionable Salary for Post-September 1, 2014 Period
· The last 60-month average before retirement is ₹50,000
📌 Step 3: Calculate Total Service Period in Days
· Pre-September 2014 Service: 24 years 8 months (~24.67 years)
· Post-September 2014 Service: 9 years 4 months (~9.33 years)
📌 Step 4: Add 2 Extra Years (Since Service is > 20 Years)
· Adjusted Pre-2014 Service: 26.67 years
📌 Step 5: Compute Monthly Pension Separately for Both Periods
Pre-2014 Pension Calculation
( ₹25,000 × 26.67 years ) / 70 = ₹9,525 per month
Post-2014 Pension Calculation ( ₹50,000 × 9.33 years ) / 70 = ₹6,664 per month
📌 Final Monthly Pension = ₹9,525 + ₹ 6,664 = ₹16,189 per month
CASE B - If EPFO Didn’t Split the Service Period?
If EPFO hadn’t applied the pro-rata method and considered full 34 years of service with ₹50,000 salary, the pension would be:
( ₹50,000 × 34 ) / 70 = ₹24,285 per month
🚨 EPFO’s formula reduces pension from ₹24,285 to ₹16,189 (a 33% reduction!)
💡 EPFO’s Stand vs. Pensioners' Concerns
EPFO's Argument | Pensioners' Argument |
Pro-rata calculation follows Para 12 of EPS, 1995 | Should not bifurcate service period for calculation |
Puts all pensioners on an equal footing | Pension is reduced by 20-30% under new method |
Legal & justified formula | Formula is against Supreme Court’s spirit and circular issued |
🔍 What’s Next?
📌 The Kerala High Court’s verdict will be crucial in deciding the future of pensioners.
📌 If ruled in favor of pensioners, many might get significantly higher pensions.
📌 If upheld, EPFO’s formula could set a new precedent for future pension calculations.
💬 What’s your take on this? Do you think pensioners should get higher pensions based on actual wages? Or should EPFO’s pro-rata method be followed?
Drop your thoughts in the comments! ⬇️
Source: Mint and various newspapers
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