EPFO: In a private sector job, while the salary coming into the bank account every month gives relief, the thought of retirement often brings wrinkles on the forehead. Unlike government employees, there is no guaranteed or tied old age pension here. In such a situation, it is common to be worried about financial security after a lifetime of hard work. But, if you are a shareholder of Employees Provident Fund Organization (EPFO) and PF is deducted from your salary every month, then your big worry ends here.
The Employee Pension Scheme (EPS) run under EPFO is no less than a strong financial shield for the people employed in the private sector. If you are planning to say goodbye to your working life in the year 2026, then it is very important for you to understand today how much amount you will get as pension every month after your job ends.
How does PF deducted from salary become pension?
Often working people think that the amount going into PF account is just a savings which will be received in lump sum on retirement. However, its economics are slightly different. The part deducted from your salary goes directly into your provident fund (EPF). At the same time, your company also contributes to your account, but a large part of that company’s contribution goes directly into your pension scheme (EPS). This is the money that gradually accumulates during your job and becomes your source of monthly income after retirement. However, the biggest condition to be eligible for this pension is that the employee has completed at least 10 years of ‘pensionable service’. Additionally, it is generally necessary to attain the age of 58 years to avail full pension.
Calculate your pension yourself accurately
You do not need to visit a chartered accountant to understand the calculation of your pension. EPFO has fixed a very transparent and easy formula for this.
The formula is: (Pensionable salary × total years of service) / 70.
It is important to understand an important technical issue here. According to the current rules of EPFO, the maximum salary (Basic + DA) limit 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 pension calculation will be decided only on the basis of the maximum limit of Rs 15,000. ‘Years of service’ in the formula refers to the entire period for which you have actively contributed to your EPS account.
How much money will you get in your hands?
Let us understand this entire calculation with the example of an employee named Kanhaiya, who is going to retire in the year 2026. Suppose the total period of his EPS contribution till the time of retirement is 50 years. Since the maximum salary limit for pension calculation under the rules is fixed at Rs 15,000, Kanhaiya’s pension will be calculated like this: 15,000 (salary) × 50 (years of contribution) ÷ 70. Based on this mathematics, this amount will be approximately Rs 10,714.
That is, after retirement, Kanhaiya will get a fixed pension of about Rs 10,714 every month. However, age also plays an important role in this scheme. If Kanhaiya starts taking his pension from the age of 50 without waiting for the age of 58, he will have to suffer financial loss. According to EPFO rules, if they start pension prematurely, they will get 4 percent less pension every year.
Also read-EPFO: There will be no tampering with your pension money! Department will correct mistakes in EPS contribution
