Employees' Pension Scheme (EPS) (India)
India's government-administered pension scheme under EPFO that provides monthly pension payments to eligible members after retirement, funded by diverting 8.33% of the employer's EPF contribution to the pension fund.
- What Is the Employees' Pension Scheme (EPS)?
- How EPS Pension Is Calculated
- Types of Pension Under EPS
- EPS Withdrawal Benefit (for Less Than 10 Years of Service)
- The Minimum Pension Debate
- EPS vs NPS: India's Two Retirement Systems
- HR's Role in EPS Administration
- Recent Developments and Reforms in EPS
- Frequently Asked Questions About EPS India
What Is the Employees' Pension Scheme (EPS)?
Key Takeaways
- ✓EPS is India's defined benefit pension scheme that provides monthly retirement pension to EPF members who complete at least 10 years of eligible service.
- ✓Funding comes from 8.33% of the employer's contribution (capped on wages of Rs 15,000/month), with no separate employee contribution to EPS.
- ✓The pension formula is: (Pensionable salary x pensionable service) / 70, where pensionable salary is the average of last 60 months' wages.
- ✓Over 78 million members (active and pensioners combined) are covered by EPS, with approximately 7.3 million currently receiving monthly pension (EPFO, 2024).
- ✓The minimum pension is Rs 1,000 per month (since September 2014), though pension rights groups have long demanded an increase to Rs 7,500 per month.
The Employees' Pension Scheme (EPS) is one of three schemes administered by the Employees' Provident Fund Organisation (EPFO) under the EPF and Miscellaneous Provisions Act, 1952. While EPF creates a lump sum retirement corpus, EPS provides a monthly pension after retirement, functioning as India's closest equivalent to a defined benefit pension plan for the organized sector. EPS was introduced on 16 November 1995, replacing the earlier Family Pension Scheme 1971. The scheme is funded entirely from the employer's side: 8.33% of the employer's contribution to EPFO is diverted to the pension fund instead of going into the employee's EPF account. The employee doesn't make any separate contribution to EPS. The government also contributes 1.16% of wages to the pension fund. An important restriction is the wage ceiling. EPS contributions are calculated only on basic wages plus DA up to Rs 15,000 per month, even if the employee earns more. This cap means the maximum monthly EPS pension, even after a full career, is relatively modest. The Supreme Court ruling in November 2022 allowed eligible members who were earning above Rs 15,000 at the time of the 2014 amendment to opt for higher pension on their actual wages, subject to additional contributions and complex transitional provisions.
How EPS Pension Is Calculated
The pension formula is simple in structure but the details around pensionable salary and service require careful attention.
The pension formula
Monthly pension = (Pensionable salary x Pensionable service) / 70. Pensionable salary is the average monthly wages (basic + DA) during the last 60 months (5 years) of service, capped at Rs 15,000 per month (unless higher pension on actual wages is opted for). Pensionable service is the number of years of eligible EPF membership, capped at 35 years. Service over 6 months in the last year is rounded up to one year. Service of 6 months or less is ignored. Example: A member with 25 years of service and an average pensionable salary of Rs 15,000 would receive: (15,000 x 25) / 70 = Rs 5,357 per month.
Past service benefit
For service before 16 November 1995, a different formula applies. The past service benefit is calculated as Rs 85 per month for each year of service if the pensionable salary on 15 November 1995 was up to Rs 2,500, or Rs 170 per month per year if the salary exceeded Rs 2,500. This formula is less generous than the post-1995 formula, reflecting the lower contribution rates of the earlier scheme. The past service and post-1995 service benefits are added together to determine the total monthly pension.
Higher pension on actual wages
Following the Supreme Court judgment of 4 November 2022, employees who were members of EPS before 1 September 2014 and earned above the wage ceiling at that time could apply for higher pension on their actual wages (not capped at Rs 15,000). The application window was extended multiple times and required both the employee and employer to contribute the differential amount with interest. Opting for higher pension means higher monthly pension in retirement but also requires transferring the excess EPF accumulations (above the Rs 15,000 ceiling) back into the pension fund. This trade-off between a larger EPF lump sum and a higher monthly pension is a significant financial decision that requires careful analysis of individual circumstances.
Types of Pension Under EPS
EPS provides several categories of pension depending on the member's circumstances.
Superannuation pension
Paid to members who retire at age 58 with at least 10 years of eligible service. This is the standard pension, calculated using the formula described above. The pension starts from the day after the member turns 58, or from the date of superannuation if later than 58. Members can also take early pension from age 50 with at least 10 years of service, but the pension is reduced by 4% for each year before 58 (known as early pension reduction).
Early pension (reduced pension)
Available from age 50 with 10+ years of service. The standard pension amount is reduced by 4% for each year the member is below 58. So retiring at 50 means a 32% reduction (4% x 8 years). At 55, it's a 12% reduction. Early pension is useful for workers who lose their jobs in their 50s and can't find reemployment but need income. The reduction is permanent: it doesn't increase to the full amount when the member turns 58.
Widow/widower pension
On the death of the member (whether active or retired), the spouse receives pension equal to 50% of the member's pension or the pension the member would have been entitled to. The minimum widow pension is Rs 1,000 per month. If the member dies while in service and hasn't completed 10 years, the widow pension is still payable based on actual service years. Additionally, children receive a children's pension of 25% of the widow pension per child, up to a maximum of two children, until they reach age 25.
Orphan pension
If both parents (member and spouse) are deceased, each eligible child receives 75% of the widow pension amount, up to two children. Orphan pension continues until the child reaches age 25. Disabled orphan children receive the pension for life.
Nominee pension
If the member has no family (no spouse, no children), the nominated person receives the pension. This provision ensures that even single, childless workers can designate a beneficiary for their pension benefits.
EPS Withdrawal Benefit (for Less Than 10 Years of Service)
Members who leave covered employment before completing 10 years of eligible service don't qualify for monthly pension. Instead, they receive a lump sum withdrawal benefit.
How withdrawal benefit is calculated
The withdrawal benefit is calculated using a government-prescribed table (Table D of the EPS Scheme) that provides a multiplier based on years of service and the member's pensionable salary. The multipliers are lower than the actual accumulated contributions, meaning the withdrawal benefit is significantly less than what the employer contributed to EPS on the member's behalf. For example, with 7 years of service and a pensionable salary of Rs 15,000, the withdrawal benefit is approximately Rs 1.49 lakh (based on Table D multipliers). This is considerably less than the total employer EPS contributions of approximately Rs 1.05 lakh plus government contribution and interest.
Scheme certificate option
Instead of taking the withdrawal benefit, members can request a scheme certificate when leaving employment. The scheme certificate preserves their EPS membership years, so if they rejoin covered employment later, the previous service is added to the new service for pension calculation purposes. This is almost always the better option for workers who expect to rejoin covered employment and eventually complete 10 years. HR teams should proactively explain this option during the exit process, as many departing employees don't realize they can preserve their pension eligibility.
The Minimum Pension Debate
The EPS minimum pension and its adequacy have been among the most contentious labor issues in India for over a decade.
Current minimum pension
The government set a minimum pension of Rs 1,000 per month effective from September 2014. Before this, many pensioners received as little as Rs 50 to Rs 200 per month, amounts that provided virtually no financial security. Even at Rs 1,000, the pension barely covers basic necessities. Adjusted for inflation, its purchasing power has eroded significantly since 2014. As of 2024, approximately 3.4 million EPS pensioners receive the minimum pension of Rs 1,000 or close to it.
Demand for Rs 7,500 minimum pension
Trade unions, pensioner associations, and opposition parties have consistently demanded increasing the minimum pension to Rs 7,500 per month, arguing that the current amount violates the right to a dignified retirement. The government has formed multiple committees to study the issue, but no increase has been implemented as of early 2026. The primary challenge is funding: the EPS pension fund already operates on a pay-as-you-go basis (current contributions fund current pensions), and the fund's actuarial deficit has been estimated at over Rs 10 lakh crore ($120 billion) by EPFO actuaries. Any significant increase in minimum pension would widen this deficit considerably.
Comparison with other government pensions
Central government employees under the old pension scheme (OPS) receive a pension of 50% of last drawn salary with no cap, plus dearness relief indexed to inflation. State government employees in states that have reverted to OPS enjoy similar benefits. Meanwhile, private sector workers under EPS receive a maximum pension capped by the Rs 15,000 wage ceiling, with no dearness relief indexation. This disparity between government and private sector pensions is a significant equity concern and drives much of the political pressure for EPS reform.
EPS vs NPS: India's Two Retirement Systems
India's formal sector workers now operate under two parallel retirement systems, each with fundamentally different philosophies.
Which system works better?
There's no universal answer. EPS provides certainty: you know the formula, you know the minimum, and the government bears the investment risk. But the capped wages and modest multiplier mean the pension is often inadequate for anything beyond basic subsistence. NPS offers potentially higher returns through market investment but provides no guarantee. Members who invest in equity-heavy portfolios during their accumulation phase have seen annual returns of 10-14% over the past decade, significantly outperforming EPS. But market downturns close to retirement can seriously damage the corpus. Many financial planners recommend having both: EPS as a baseline guaranteed pension and NPS as a market-linked top-up. For employees who have the option, contributing the maximum tax-deductible amount to NPS while maintaining EPF/EPS membership provides the most diversified retirement income.
| Feature | EPS (Employees' Pension Scheme) | NPS (National Pension System) |
|---|---|---|
| Type | Defined benefit (guaranteed pension formula) | Defined contribution (pension depends on investment returns) |
| Who's covered | EPF-covered employees (private sector + some PSUs) | Central/state government employees (post-2004) + voluntary subscribers |
| Funding | Employer's 8.33% EPF contribution + 1.16% government contribution | Employee + employer contributions, market-invested |
| Investment risk | Government bears it | Member bears it |
| Pension calculation | Formula: (salary x service) / 70 | Based on accumulated corpus and annuity rates at retirement |
| Minimum pension | Rs 1,000/month (since 2014) | No minimum guarantee |
| Portability | Linked to EPF membership | Fully portable across employers and sectors |
| Tax treatment | No tax on employer contribution; pension taxable as salary | Extra Rs 50,000 deduction under 80CCD(1B); 60% of corpus tax-free on withdrawal |
HR's Role in EPS Administration
HR teams manage several EPS-related processes that directly affect employees' retirement benefits.
Nomination management
Every EPF/EPS member must file Form 2 (nomination form) designating family members to receive pension and EPF benefits in case of death. HR must ensure nominations are current, particularly after life events like marriage, divorce, birth of children, or death of a nominee. Incorrect or outdated nominations cause significant hardship for families trying to claim pension benefits after a member's death. EPFO has digitized the nomination process through e-nomination, which HR teams should encourage all employees to complete.
Service verification for pension eligibility
When an employee approaches retirement or requests early pension, HR must verify their total eligible service. This includes confirming service periods with previous employers (through transfer records), ensuring that breaks in service are properly documented, and validating that all employment periods where EPF contributions were made are counted. Service gaps of more than 6 months between two spells of EPF membership are excluded from pensionable service. Accurate service records prevent disputes during pension processing.
Exit process and EPS options
When employees leave before completing 10 years, HR should clearly explain their options: take the withdrawal benefit (lump sum) or request a scheme certificate (preserve service years). Many employees choose the withdrawal benefit because it provides immediate cash, not realizing they're sacrificing potential pension eligibility. A 7-year departing employee who takes the withdrawal benefit and later joins another covered establishment starts from zero. The same employee with a scheme certificate resumes from year 7 and needs only 3 more years for pension eligibility.
Recent Developments and Reforms in EPS
Several significant changes and court rulings have reshaped EPS in recent years.
Supreme Court ruling on higher pension (November 2022)
The Supreme Court in EPFO vs Sunil Kumar ruled that eligible members who were in service before September 2014 and earning above Rs 15,000 at that time could opt for higher pension on actual wages. The court directed EPFO to allow these applications within a specified window. This ruling affected millions of members but created enormous administrative complexity. The application process required joint employer-employee validation, differential contribution calculations with interest, and actuarial adjustments to pension projections. EPFO struggled with the implementation timeline and extended deadlines multiple times.
EDLI enhancements
The Employees' Deposit Linked Insurance Scheme, which runs alongside EPF and EPS, was significantly enhanced in 2021. The maximum insurance benefit increased from Rs 6 lakh to Rs 7 lakh, with the minimum benefit set at Rs 2.5 lakh. The calculation method was simplified to a flat 30x the member's average balance in the preceding 12 months, plus a bonus (currently Rs 1.75 lakh). For EPF members earning Rs 15,000 or more, this provides substantial life insurance coverage at no cost to the employee.
Social Security Code 2020 impact on EPS
The Code on Social Security 2020, when fully implemented, will bring EPS under a unified social security framework. Proposed changes include extending coverage to gig and platform workers (though the mechanism for pension contributions from gig work is unclear), establishing a Social Security Fund from which benefits would be paid, and potentially revising the pension formula and contribution rates. The Code's pension-related provisions remain in development, and actual implementation is expected to involve extensive consultation and gradual rollout.
Frequently Asked Questions
Can I receive EPS pension and continue working?
What if I've worked at 5 different companies over 15 years? Do I get a pension?
Is EPS pension taxable?
Can I get both EPF lump sum and EPS pension?
What happens to my EPS pension if I become a citizen of another country?
Written by Adithyan RK