Complete Guide to EPS (Employee Pension Scheme) in India

Employee Pension Fund Simplified
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The Employees’ Pension Scheme (EPS), managed by the Employees’ Provident Fund Organisation (EPFO), is a key component of India’s social security system for salaried individuals, ensuring pension benefits after retirement. However, many employees, particularly in private and multinational companies, often misunderstand how contributions are structured, the portion allocated to EPS, and the government’s role in supporting it. To put it simply, a small part of your total EPF contribution is diverted into the EPS fund, which is designed to provide you with a pension at the age of 58 — or as early as 50 if you choose to opt for it. This blog aims to clarify these aspects with precision and official references.

How EPS Contribution Works

Out of your 12% employee PF contribution, the entire amount goes to your EPF account.
Your employer also contributes 12% of your basic salary + DA:
8.33% goes to EPS (subject to a salary cap of ₹15,000). This means ₹1,250 per month is the maximum contribution to EPS.
The remaining 3.67% goes into your EPF account.

Example: If your basic salary is ₹50,000 per month:

Employee contribution (12%): ₹6,000 → goes fully into EPF.
Employer contribution (12%): ₹6,000 → of which ₹1,250 goes to EPS, balance ₹4,750 goes into EPF.

So, no matter how high your salary is, your EPS contribution is capped at ₹1,250 per month (before higher pension facility, explained below).

ROI Calculations

Let us now come to the juicy part where we calculate the ROI on our EPS calculations. Let’s assume you started a job post B. TECH/B. E and also assume you don’t want to work your whole life and assuming you retire at 45.

Step 1: Total EPS contribution

₹1,250 × 12 × 23 years = ₹3.45 lakh (approx.)

(but remember, this doesn’t come back to you directly, it goes into EPS pool → pension only).

Step 2: Pension Formula

EPS monthly pension = (Pensionable Salary × Pensionable Service) / 70

Pensionable Salary = capped at ₹15,000
Service = 23 years

20-Year Bonus Rule in EPS

There’s a small but powerful reward hidden inside the EPS rules. If you complete 20 years of service or more, the system gifts you an extra two bonus years when your pension is calculated.

Think of it like this: suppose you’ve actually worked for 23 years. When the pension formula is applied, your service won’t be counted as 23 — it’ll be treated as 25 years (23 actual + 2 bonus).

The best part? This bonus doesn’t depend on sticking with a single employer. As long as you transfer your PF account properly each time you change jobs (through your UAN), all those years get clubbed together, and the two-year bonus gets added once you cross the 20-year milestone.

So,
(15,000 × 25) / 70 = ₹5,317.14 per month

Step 3: Pension at Different Ages

If you take pension at 50 → reduced by 4% per year before 58 → 8 years early → 32% cut.
₹4,928 × (1–0.32) = ₹3,615.5 per month.
If you take at 58 → full pension → ₹5,317.14 per month.

Step 4: Factor-in Inflation

Assuming inflation of 6.5% each year, the real story changes once we adjust for inflation. Assuming a long-term average inflation rate of 6.5%, the future payouts shrink drastically in today’s value.

At Age 50
Nominal Pension:₹3,615.5 per month.
Inflation-Adjusted Value: ₹620 per month
At Age 58
Nominal Pension: ₹4,928 per month.
Inflation-Adjusted Value: ₹551 per month

By the time you actually start receiving your EPS pension, it can be worth half of what it looks like today.

Is this unfair?

No as the amount contributed each year for EPS fund is also capped and fixed. Even though your salary increases each year so your contribution decreases wrt to inflation

How can I apply for Early Pension under EPS and who is eligible?

An employee becomes eligible for an early pension under the Employees’ Pension Scheme (EPS) if they have worked for at least 10 years and are between 50 to 58 years of age. Normally, the full pension starts at 58 years, but if someone chooses to take it earlier (anytime after turning 50), it will be paid at a reduced rate. For each year the pension is taken before 58, the monthly amount goes down by about 4% per year.

Procedure to claim early EPS pension:

Make sure you meet the minimum 10 years of service requirement.
Fill out Form 10D through your employer or the EPFO member portal.
Submit your Aadhaar, bank details, and service records.
The application will be verified by your employer and then processed by EPFO.
Once approved, the reduced monthly pension will start getting credited directly to your bank account.

Example: If you retire at 55 with 20 years of service, you can apply for early pension, but the pension will be 20% less (4% × 3 years early) compared to what you would have received at 58.

The Story Behind EPS Wage Ceiling

When the Employees’ Pension Scheme (EPS) was launched back in 1995, the contribution limit was linked to a fairly modest salary cap of ₹5,000 per month. In simple terms, this meant that even if you earned more, pension contributions would only be calculated on that ₹5,000 base.

By 2001, the cap was nudged up slightly to ₹6,500 — a small but important step, given how salaries were growing. But the real game-changer came much later. In September 2014, the government finally revised the ceiling to ₹15,000 per month, bringing it more in line with modern pay structures.

This revision didn’t just change numbers on paper — it had a real impact on how much employees could build as a pension base. For many, it meant their retirement benefits would finally start reflecting a larger portion of their actual salary.

Frequently Asked Questions (FAQs)

1. What is EPS?

EPS (Employees’ Pension Scheme) is part of EPF where 8.33% of your employer’s contribution (capped at ₹1,250 per month for most) goes into a pension fund, which later provides you with a lifelong monthly pension after retirement.

2. How is the pension calculated?

The standard formula is:

Pension = (Pensionable Salary × Pensionable Service) ÷ 70

Pensionable Salary = Average of last 60 months’ basic salary (capped at ₹15,000 unless opted for higher pension).
Pensionable Service = Total service years (max 35).

3. What happens if I exit before 10 years of service?

You can withdraw the EPS contribution as a lump sum based on Table D withdrawal values. If you have 10+ years, you’re eligible only for pension (deferred till 50 or 58).

4. Can I start pension early at 50?

Yes, but there’s a reduction of 4% per year before 58.

5. Is EPS pension inflation-adjusted?

No. Pension remains flat for life.
Using a 6.5% annual inflation assumption, the real value of a pension of ₹3,000 at age 58 reduces to about ₹510 in today’s money. This is why EPS alone cannot sustain retirement.

6. What is “Higher Pension” under EPS?

Higher Pension is an option provided by EPFO (as per Supreme Court verdicts) where employees can contribute 8.33% of their full basic salary (not capped at ₹15,000) towards EPS. This increases the pension substantially.

7. Who is eligible for Higher Pension?

Those who were EPF members before September 1, 2014.
Who had contributed on full salary but didn’t file a joint declaration then.
Who applied for Higher Pension before July 11, 2023 (deadline after SC ruling).

8. Is Higher Pension still available in 2025?

No. As of 2025, EPFO has stopped accepting fresh applications for Higher Pension.
Those who already applied and had their requests approved can benefit. Others cannot newly opt in.

9. What are the pros and cons of Higher Pension?

Pros:

Much higher lifelong pension (often 4–5× normal).
Indexed to your actual basic salary, not capped.

Cons:

Requires a large past contribution adjustment (retrospective transfer from your EPF balance to EPS).
No commutation or lump-sum withdrawal — it’s a fixed pension.
Not inflation-adjusted → purchasing power still erodes.

10. Should I rely only on EPS pension?

No. Even with Higher Pension, the lack of inflation protection means real retirement security requires NPS, PPF, mutual funds, or other investments.

11. Can you start EPS pension at 50 while still working?

No. You cannot draw pension while you are still in service (still employed in a job where EPF/EPS contributions are being made).
EPS pension is only payable after you exit employment (i.e., when you are no longer an active member of EPF/EPS).

Changing Jobs? Here’s What Happens to Your PF & Pension

When you join a new company, just share your UAN (Universal Account Number) with HR. Your new employer will open a fresh PF account (member ID) under the same UAN.

But here’s the catch just giving your UAN is not enough.

Why?

Because your old PF balance and EPS service years don’t automatically move to the new account.

What you need to do

Log in to the EPFO Member Portal.
Go to Online Services → One Member, One EPF Account (Transfer Request).
Select your old and new employer details.
Submit the request (your employer digitally approves it).

What happens after

PF Money → Old PF balance moves to your new PF account.
EPS Service Years → Your pension service record continues smoothly.

If you skip the transfer, your PF balance stays locked in the old account and your EPS service years won’t get added up — meaning a weaker pension later.

Simple Rule:
Always provide your UAN + don’t forget to request a transfer. That way, both your money and pension service years move with you.

If a person dies before 50 years (and pension has not started yet)

EPS Amount: The person is still considered an EPS member (if service >10 years or otherwise).
Benefits:
Family Pension goes to the spouse, children (up to 25 yrs), or dependent parents.
If no wife, no kids, and no dependent parents → EPS pension is not paid to anyone. The pension portion (8.33% of employer contribution) does not come back as cash.
However, EPF corpus + EDLI insurance (if eligible) is payable to legal heirs/nominees.

2. If a person dies at 51 years, having started pension at 50

Pension becomes monthly annuity.
Again, Family Pension rules apply:
Widow gets 50% of member’s pension for life.
Children get 25% share till 25 years of age.
Dependent parents if no wife/children.
If no dependents → pension stops with the member’s death. EPS does not give residual value back.

3. Special Case: No wife, no kids, no parents

Both before and after pension starts → pension dies with the member.
Only EPF balance + EDLI (insurance) may go to legal heirs (siblings, relatives, nominees).
EPS corpus is non-refundable (this is one of the most debated issues with EPS).

EDLI (Employees’ Deposit Linked Insurance) — A Quick Add-On

Alongside EPF and EPS, employees also get covered under EDLI, which is basically a life insurance scheme linked to your PF account. If a salaried employee passes away during service, the nominee receives a lump sum insurance amount. The payout is linked to the balance in the PF account, but it generally ranges up to around ₹7 lakh.

30 × your average monthly salary, plus a bonus of ₹2.5 lakh, capped at around ₹7 lakh.

One important point — if your company already provides its own group life insurance that’s equal to or better than EDLI, then EDLI may not apply, since the employer is already giving you coverage.

When it comes to nominations, EDLI rules are very similar to EPF. By default, you can nominate family members (spouse, children, or dependent parents). Friends or same-sex partners usually cannot be made nominees unless they are legally recognized as part of your family (for example, a spouse after marriage).

In EPF, EPS, and EDLI — all three — the nomination rules are tied to “family” as defined under the EPF Act.

Family for a male employee = wife, children (married or unmarried), and dependent parents.
Family for a female employee = husband, children, and dependent parents-in-law.

So, while EDLI gives peace of mind in terms of insurance coverage, its nomination rules are still quite traditional and family-oriented.

Resource Reference List

Groww-EDLI — Features, Benefits, Eligibility Criteria & How Does it Work?

Paisabazaar. (2025, May 27). What is Employees’ Pension Scheme (EPS): Eligibility, Calculation & More. Paisabazaar. https://www.paisabazaar.com/saving-schemes/employees-pension-scheme/

Fi Money. (2024, April 23). Employee Pension Scheme (EPS): Eligibility, Calculation & How to Check if You Are a Part of EPS. Fi Money. https://fi.money/guides/investments/eps-what-is-employee-pension-scheme-how-to-check-if-you-are-a-part-of-eps

Muthoot Finance. (2025, March 23). Difference Between EPF and EPS: Features and Calculation. Muthoot Finance. https://www.muthootfinance.com/blog/difference-between-epf-and-eps-features-and-calculation

CreditMantri. (1994, December 31). Employees’ Pension Scheme (EPS) — Eligibility Criteria, Calculation & More. CreditMantri. https://www.creditmantri.com/employee-pension-scheme/

Go Better. (n.d.). All You Need To Know about Employees’ Pension Scheme (EPS). Go Better. https://go-better.com/blog/employee-pension-scheme/

Paytm. (n.d.). EPF vs EPS — Know How it Works & Difference. Paytm. https://paytm.com/blog/epf/epf-vs-eps-know-the-difference-between-epf-and-eps/

myScheme. (2024, December 31). Employees’ Pension Scheme. myScheme. https://www.myscheme.gov.in/schemes/eps

EPFO. (2025, August 19). EPFO Circulars. Employees’ Provident Fund Organisation. https://www.epfindia.gov.in/site_en/circulars.php

These are just used to get some formula and facts but blog is not based on these 🙂 .