EPFO Pension Calculation: What is the basis for determining your pension from the EPFO? Find out the formula for this.
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EPFO Pension Calculation: Millions of employees across the country contribute a portion of their salary to the EPFO every month. This is a major retirement planning tool, especially for those working in the private sector. 12 percent of an employee’s salary goes into their PF.
A portion of this is deposited into the pension scheme, EPS. After retirement, you receive this amount as your monthly pension. But the real question is how much pension you will receive and how it is calculated. Let us explain the full calculation.
When is pension received?
Every month, 12 percent of an employee’s basic salary and DA is deposited into the PF. Of this, 8.33 percent is transferred to the Employee Pension Scheme, while 3.67 percent remains in the PF account. A minimum of 10 years of service is required to receive a pension. According to the rules, pension normally begins after the age of 58. The number of years you contribute during your employment counts as service for your pension. This determines your monthly pension.
What is the pension formula?
The EPFO has established a clear formula for determining pension. The formula for calculating monthly pension is: Salary for pension x Service for pension / 70. Here, salary for pension refers to your average salary over the last 60 months. That is, the average salary for the five years prior to retirement is taken into account. Service for pension includes the total number of years you contributed, provided you have completed at least 10 years. This calculation determines each employee’s monthly pension.
How to calculate?
Suppose an employee’s pension salary is ₹15,000 and they have contributed for 10 years. Using the formula, calculate 15,000 x 10/70. The monthly pension will be approximately ₹2,143. If your salary is higher or your service tenure is 20 or 25 years, your pension will increase proportionately. This means that the longer you contribute and the higher your salary, the higher your monthly pension. Understanding this formula is crucial when planning for retirement.
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