EPS 2026: New withdrawal rules and 20-day claim settlement explained

India's statutory pension system is set for a major overhaul with the introduction of the Employees' Pension Scheme (EPS), 2026. Notified under the Code on Social Security, 2020, the new framework aims to modernise the pension system while ensuring that existing EPFO subscribers do not lose any of their accumulated benefits or rights.

The scheme, administered by the Employees' Provident Fund Organisation (EPFO), will continue to provide a monthly pension to eligible employees in the organised sector. While many of the core features remain unchanged, EPS 2026 introduces several important reforms aimed at improving transparency, speeding up claim settlements and encouraging long-term retirement savings.

Here's a look at the key changes

What remains the same?

To ensure a smooth transition, the government has retained several key features of the existing EPS-1995 scheme.

Existing members will be migrated automatically

Employees currently covered under EPS-1995 or the earlier Family Pension Scheme, 1971, will automatically become part of EPS 2026. No fresh registration or application will be required.

Pension calculation remains unchanged

The formula used to calculate the monthly pension will continue to remain the same:

Monthly EPS pension = Pensionable salary × Pensionable service ÷ 70

Similarly, the pensionable salary will continue to be calculated as the average monthly salary earned during the last 60 months of eligible service before retirement.

What's changing under EPS 2026?

While the basic structure remains intact, the new scheme introduces several important reforms.

1. Three-year waiting period for withdrawal benefits

One of the biggest changes relates to withdrawal benefits.

Under the earlier scheme, employees leaving their jobs before becoming eligible for a pension could claim withdrawal benefits relatively soon after exiting employment.

Under EPS 2026, members must wait 36 months from the date of their last contribution before they can claim withdrawal benefits. However, this waiting period will not apply if the member reaches the retirement age during that period.

The objective is to encourage employees to stay invested in the pension system for longer and build a larger retirement corpus.

2. Higher pension option gets statutory backing

The much-discussed higher pension option has now been formally incorporated into the new scheme.

Under Paragraph 4(2) of EPS 2026, eligible employees can continue to opt for higher pension contributions based on their actual salary instead of the prescribed wage ceiling.

Giving this provision statutory recognition is expected to provide greater legal certainty and transparency for employees choosing the higher pension route.

3. EPFO must settle claims within 20 days

EPS 2026 also introduces a strict timeline for processing pension claims.

Under Paragraph 17, the EPFO is required to settle eligible pension claims within 20 days.

If the deadline is missed without a valid and documented reason, the delayed amount will attract 12% annual interest. The interest can be recovered from the commissioner responsible for the delay, thereby strengthening accountability within the organisation.

4. Uniform penalty rules

The revised scheme also aligns the penalty and damages provisions under EPS 2026 with those under the EPF Scheme, 2026.

The move is expected to simplify compliance for employers who manage both provident fund and pension contributions for their employees.

What does it mean for employees?

For most EPFO subscribers, the transition to EPS 2026 will be seamless, with existing pension benefits and calculation methods remaining unchanged.

At the same time, the new framework introduces stronger safeguards, faster claim processing and clearer legal provisions, particularly for employees opting for a higher pension.