The Employees’ Pension Scheme (EPS) often remains the least understood part of your provident fund even though a good amount goes into it. From eligibility and contributions to withdrawing the money and how monthly pension is calculated, the rules for EPS are vastly different from those governing the Employees’ Provident Fund (EPF).
Recent claim rejections due to incorrect EPS contributions have brought the spotlight back on the pension scheme. Here's a guide to how EPS works, who is covered and the key rules.
EPS contribution
EPS is the pension arm of the Employees’ Provident Fund Organisation (EPFO). While employees contribute 12% of their basic salary and dearness allowance entirely to EPF, they do not contribute separately to EPS.
Instead, 8.33% of the employer's matching 12% contribution, subject to the statutory wage ceiling of ₹15,000 a month, is diverted to EPS. This means the maximum contribution to EPS is ₹1,250 a month, with the balance of the employer's contribution flowing to the EPF account.
Unlike EPF, EPS does not earn annual interest or maintain an individual account balance. Contributions from all members are pooled into a common pension fund from which monthly pensions are paid.
While your EPF balance gets consolidated after a transfer, the same does not happen with EPS. Even after transferring your EPS from your previous employer to the current one, the EPS contribution will continue to appear separately against each employer in your passbook.
"People often ask us why their EPS still appears under their previous employer even after they have transferred it. That's because an EPS transfer only carries forward your pensionable service history; it does not involve any transfer of funds. As a result, there is no single consolidated EPS balance, making it difficult for members to verify whether the transfer has actually been completed," said Kunal Kabra, co-founder of fintech startup Kustodian.Life.
Withdrawal from EPS
Although EPS is designed to provide a pension after retirement, a lump-sum withdrawal is permitted if you leave your job before completing 10 years of eligible service. It is 113 months or 9.4 years, to be precise. EPFO rounds it off to 10 years if it is above 113 months. Once that happens, you cannot withdraw the EPS amount as a lump sum. Instead, you become eligible for a monthly pension, generally from the age of 58.
What if you leave your job after completing 10 years and do not join any other organization? You can obtain a scheme certificate from your last employer. This document preserves your pensionable service and can be used to claim pension at retirement or when transferred if you join another EPF-covered establishment after a gap.
EPS eligibility
EPS eligibility hinges on one crucial date: 1 September 2014. If you joined the workforce for the first time on or after this date and your basic salary exceeded ₹15,000 a month, you are not eligible to become an EPS member. In such cases, the employer's entire contribution is credited to your EPF account. However, if your basic salary was ₹15,000 or less, you become an EPS member, with 8.33% of the employer's contribution (up to ₹1,250 a month) diverted to EPS.
What if you were already contributing to EPS before 1 September 2014 and your basic salary later crossed ₹15,000? Nothing changes. The wage ceiling applies only to new entrants joining EPF on or after 1 September 2014. Existing EPS members continue contributing to both EPF and EPS under the prevailing rules.
This seemingly simple eligibility rule has become a major source of disputes in recent months. Many pension claims are being rejected because of incorrect EPS contributions or because the employee has been classified as ineligible for the pension scheme.
"If EPS has been deducted for a member who was never eligible for the pension scheme, the contribution has to be transferred from EPS to EPF. Since EPF earns interest while EPS does not, the interest also has to be recalculated. Conversely, if EPS contributions were not deducted for someone who should have been an EPS member, the money has to be moved from EPF to EPS and the excess interest credited to EPF has to be reversed," said Kabra.
The rectification can take months.
"If the erroneous contribution relates to FY26, the correction can be initiated from July. But if the mistake occurred during the current financial year, say, between April and June, the member will have to wait until the financial year ends and then wait several more months for the correction to be processed," Kabra added.
Pension calculation
The EPFO calculates your pension using the following formula:
Monthly pension = pensionable salary × pensionable service ÷ 70
For most members, the pensionable salary is capped at ₹15,000 a month. Assuming 35 years of pensionable service, the monthly pension works out to:
₹15,000 × 35 ÷ 70 = ₹7,500
This figure is often cited as the maximum pension under the standard EPS framework. However, it is not a statutory cap. If a member has more than 35 years of pensionable service, the pension can be higher. Similarly, members who opted for the higher pension scheme may receive a substantially larger pension because their pension is calculated on actual eligible salary rather than the ₹15,000 wage ceiling.
The minimum pension under EPS remains ₹1,000 a month.