Considering how inflation is eating into our hard-earned money and making essential purchases unviable, many people have opted for a higher pension under the Employees’ Provident Fund Organisation (EPFO) scheme. The eligibility to opt for a higher pension came after the Supreme Court decree allowing people who were EPF members since 2014 to opt for a higher pension contribution by June 26, 2023.
The EPFO has now introduced a new approach for calculating pensions based on a higher salary, rather than the standard statutory limits. This change applies to individuals who choose to receive a higher pension based on their actual salary, exceeding the set limit of ₹15,000 as stipulated in the Employees Pension Scheme (EPS) of 1995. The approval for the higher pension amount will be granted once EPFO’s field officers verify the information submitted jointly by employers and employees.
For individuals who retired before September 1, 2014, their pension calculation will be based on the average monthly pay received in the 12 months leading up to their retirement or departure from the pension fund. On the other hand, for those who retired or will retire after this specified date, their pension will be calculated using the average monthly pay earned in the 60 months immediately preceding their retirement.
Currently, the pension calculation formula involves multiplying the pensionable salary (which is the average of the last 60 months’ salary) by the number of years of contribution and then dividing the result by 70.
Are you eligible for a higher pension?
Employees enrolled in both EPFO and EPS before September 1, 2014, and are still employed but missed the opportunity to select the higher pension option previously, now have the opportunity to apply for a higher pension. For individuals who retired before this date and had already chosen the higher pension option, they will need to verify the information provided.
Those inclined to opt for a pension based on their actual pay rather than the statutory amount of ₹15,000 will need to apply to the online platform available on the EPFO’s member portal.
Currently, the calculation of pension is based on the statutory wage ceiling of ₹15,000. From your employer's contribution, ₹1,250 (which is 8.33 per cent of ₹15,000) is allocated towards the Employees' Pension Scheme (EPS). This contribution is pooled with others in the EPS to provide regular pension income to member-employees who have completed at least ten years of service, as well as their dependent family members.
However, due to a recent verdict by the Supreme Court, you now have the option to redirect 8.33 per cent of your actual salary toward the pension pool. This has the potential to result in a higher pension amount after your retirement.
Furthermore, an additional 1.16 per cent of your employer's contribution will be allocated to the EPS, while the remaining 2.51 per cent will be directed to your EPF.
If you happen to identify any errors in your application for claiming a higher pension after submitting it, you have the option to delete the application and resubmit a corrected version. However, this will not be possible if your employer has already validated the initial application.
Subsequently, EPFO officers will assess and approve your application, clearing the path for you to receive a higher pension amount.