One of the most commonly heard worlds in the organized working sector is pension. But as much as it is heard, the less it is understood in all its depth. Read on to learn various things about pensions and get a much-needed introduction to the pension calculator all of you have been looking for.
What is the Employee Pension Scheme?
Employee Pension Scheme (EPS), provided by the Employee Provident Fund Organization (EPFO) was introduced in the 1990s to help the employees of the organized sector by making it more socially secure. The scheme comes with multiple benefits which can be availed by adhering to some prerequisites.
As for pension, it is a fund into which an amount of money is accumulated during an employee’s year of service and is given to the employees when they retire to help them through their retirement period with the help of recurring payments.
Who is eligible?
To avail benefits of the Employee Pension Scheme, you will have to meet some criteria:
- You must be a member of the Employee Provident Fund Organization
- You are at least 58 years of age
- You have completed at least 10 years of active service along with 10 years of contribution to the Employee Pension Scheme
How does the EPS work?
The employees and employers contribute 12% of the employee’s basic salary and the Dearness Allowance (DA).
The employer’s contribution can be divided into two parts:
EPS contribution: 8.33%
EPF contribution: 3.67%
Over and above the eligibility criteria there are also some ways in which you can get your pension in a roundabout manner:
- You can withdraw your pension from the fund starting at age the of 50 but it will be at a lower rate than general
- You can defer your pension for about 2 years, i.e. start your pension withdrawal from 60 and get an additional 4% hike on your pension
How to calculate pension in EPF?
Your pension is directly related to your years of service and pensionable salary. You may now wonder what exactly is a pensionable salary. Pensionable salary is the average of the monthly income you received in the last 12 months of your service before retirement.
There is a straightforward formula to calculate pension:
Pension= Average salary * Pensionable Service / 70
Note: Here the pensionable years of service start from November 15, 1995. For anyone who started working before this has to adhere to a different formula.
What is a pension calculator
A basic pension calculator gives an estimated value of what your pension would be by filling out the following details:
- Date of birth
- Retirement age
- Type of retirement (Superannuation or Voluntary)
- Total qualifying years of service
- Sum of last 10 months’ payment (Basic pay + Practising allowance)
- Last month’s payment (Basic pay + Practising allowance)
A shuffle or combination of these details can help you calculate your pension.
Common mistakes made during pension calculation
Not everything is flawless, especially with procedures that involve multiple variables and calculations. Some of the common mistakes that can be made while calculating pension are:
- Not including the entire compensation: It is very important to jot down all your sources of earning money as well as all the overtime hours you put in because all that money is to be counted while calculating pension.
- Putting in the incorrect interest rate: The amount that you receive as your pension depends on the performance of today. It won’t always be easy to determine the correct rate at which the fund will grow and could lead to using an incorrect value while understanding what your pension could be.
- Your employer hasn’t contributed: There might come a situation where your employer doesn’t contribute to your fund. This could be because of multiple reasons, one of them being the company suffering from a cash crunch.
Types of pension
This elaborate pension scheme doesn’t just provide for the employees in the organized sector but it tends to various other aspects of an employee’s life. Let’s see what other types of pensions are there:
- Widow pension plan – Under this plan, the widow or widower will receive the pension amount until he/she dies or he/she remarries. In case a person has more than one widow/widower the amount will be given to the eldest one.
- Orphan pension plan – Children are eligible for this pension plan only when both, the member of EPS and their spouse die. This pension goes as high as 75% of the widow pension plan and only two children are eligible for the same.
- Child pension plan – Under this plan, the children of the member of the EPS are eligible for up to 25% of the pension of the widow pension plan but only until he/she turns 25. This plan too is extended to only 2 children, oldest to youngest.
Check your pension amount
There is a very simple procedure to check your pension status. The steps are as follows:
- Open www.epfindia.gov.in and log in
- You will find Online Service there, click on Pensioner Portal
- You will then be taken to the ‘Welcome to Pensioner’s Portal’
- Locate ‘Know Your pension Status’ there on the right-hand side
- Fill in the necessary details and click on ‘Get Status’
Making sure your future is safe and secure should be your top priority, especially if you have a family to look after. The government has very elaborate schemes to help you make your life easier and your future is taken care of.
With multiple tools out there, it could get a little confusing as to what to rely on.
But one place where you can get all finance-related information in the most detailed yet simplified manner is Piramal Finance.