Many employees diligently make contributions to EPF account so that they can have good corpus at the time of retirement. Further, if they are covered under the EPS – a pension scheme for employees, then they start getting their pension once they become eligible. However, not many people are aware that they are eligible for bonus if they have made contributinon to EPF for more than 20 years.
Usually, employees covered under the Employees’ Pension Scheme (EPS) know that they are eligible for a pension from the age of retirement. However, not many know that if they have been covered under the Employees’ Provident Fund (EPF) for more than 20 years, they are also entitled to a bonus. This bonus is given in the form of additional service years as specified under the pension scheme. Once this bonus is added to your service year, then this will boost the pension amount you are eligible to receive.
If an employee has rendered service of 20 years or more under the EPF Scheme, then two years is added to the service period. This service period can be with one employer or with different employers, provided they are covered under the EPF Scheme. Do note that the maximum service period under the EPS is 35 years.
For example, Suppose an individual has worked for 20 years while being covered under the EPF Scheme. When the pension of the individual is calculated, two years will be added to the pensionable service period. This means that it will be assumed that the individual has worked for 22 years for the purpose of EPS pension calculation. However, if the employee’s service period is 35 years, then there will be no addition to the service years as bonus.
Do note that for the purpose of calculation of pension under the EPS, a service period of less than 6 months is ignored and a service period of 6 months or more is taken as a full year. Suppose an individual has worked for 19 years and 8 months, the employee would be considered to have worked for 20 years. However, if the working period was 19 years and 4 months, then 19 years would be taken for pension calculation. In the second example, the bonus service years will not be added. This is because the employee has not rendered the minimum 20 years’ service to be eligible for bonus.
How bonus years impact your EPS pension amount
An employee eligible for bonus will receive a higher pension amount if the bonus service years are added to their service.
This is done by doing calculation (Pensionable salary X pensionable service years)/70.
Let us take the case of an employee who has worked for 21 years with multiple employers while continuously making contributions to the EPF and EPS accounts. The pensionable salary is capped at Rs 15,000, according to the EPF law. The eligible pension amount would be Rs 4,500 – (15,000X21)/70. Now, if the bonus service years (2 years) are added to the pensionable service years, the pension amount would become Rs 4,929 – Rs (15,000X23)/70.
There is an increase of Rs 429 in the pension amount due to addition of the bonus service years.
How EPS pension is calculated
The formula mandated by the EPF law is: (Pensionable salary X pensionable service years)/70.
Pensionable salary: It is the “average” of the last drawn salary. According to the EPFO’s 2014 notification (upheld by the Supreme Court in its judgment dated November 4, 2022), it is the average of the last 60 months’ basic salary. The average salary was capped at Rs 15,000 from September 1, 2014.
Pensionable service: It refers to the number of years during which EPS contributions were made by the employer. Employees should remember that if there is a gap in the EPS contributions during the working life of an employee, then such years will not be considered for calculation of pension. For instance, suppose an employee has worked with company A (covered under EPF) for 5 years, with company B (covered under EPF) for 6 years and with company C (not covered under EPF) for 4 years. To calculate the pension, only the service periods for companies A and B will be considered. This is because no contributions were made in the EPF and EPS account when the employee was working with company C.
