Employees’ Pension Scheme (EPS), 1995: Structure, Benefits, and Current Challenges
The Employees’ Pension Scheme (EPS), 1995, operates as a hybrid social security scheme that incorporates both defined contribution and defined benefit elements. The financial structure of the EPS is primarily supported by two sources:
Employer Contribution: Employers contribute 8.33% of the employee’s wages towards the pension fund.
Central Government Contribution: The government provides additional support amounting to 1.16% of wages, applicable up to a maximum wage limit of Rs. 15,000 per month.
The accumulated fund from these contributions is utilized to pay out pensions, with the fund being evaluated annually in accordance with regulatory requirements outlined in paragraph 32 of the EPS, 1995.
Pension Calculation
The pension amount for members is calculated using the formula:
Pension = ( Pensionable Service×Pensionable Salary)/70
This formula takes into account the total pensionable service period and the pensionable salary of the member, ensuring that pensions are reflective of an individual’s earnings and tenure.
Minimum Pension Provision
In a significant policy move in 2014, the Indian government introduced a minimum pension guarantee of Rs. 1,000 per month for pensioners under the EPS. This was a crucial step aimed at enhancing the financial security of retirees, particularly those with lower pension amounts. This minimum pension is funded through additional budgetary allocations, on top of the standard 1.16% contributions made annually to the EPS.
Current Scenario
As of the fiscal year 2023-24, it has been reported that around 47 lakh member pensioners are receiving pensions below Rs. 9,000 per month. This statistic underscores the challenges faced by a significant portion of retirees who may struggle to meet their basic financial needs despite their years of service. The government’s efforts to provide a minimum pension reflects an ongoing commitment to improving the welfare of pensioners, but there remains a pressing need for further reforms to ensure adequate support for all retirees within the EPS framework.
The EPS, 1995 is a “Defined Contribution-Defined Benefit” Social Security Scheme. The corpus of the Employees’ Pension Fund is made up of (i) contribution by the employer @ 8.33 per cent of wages; and (ii) contribution from Central Government through budgetary support @ 1.16 per cent of wages up to an amount of Rs.15,000/- per month. All benefits under the scheme are paid out of such accumulations. The fund is valued annually as mandated under paragraph 32 of the EPS, 1995.
However, the Government, for the first time, in the year 2014, provided a minimum pension of Rs. 1000 per month to the pensioners under the EPS, 1995 by providing budgetary support, which was in addition to the budgetary support of 1.16 per cent of wages provided annually towards EPS to Employees’ Provident Fund Organization (EPFO).
During F.Y. 2023-24, approximately 47 lakhs member pensioners were drawing pension less than Rs.9,000/- per month.
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