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For the salaried class, the Employees' Provident Fund (EPFO) is not just a savings scheme, but a major foundation for their future security. A small amount is deducted from your salary every month, and an equal portion is deposited into this fund by your company. Most people view PF as a lump sum that can be withdrawn when needed. But there's another, and perhaps more important, part of this contribution that goes into the Employees' Pension Scheme (EPS).

It's the EPS that guarantees you a fixed monthly pension after retirement. But in today's fast-paced world, people change jobs frequently. Often, after working for 10-12 years, they leave their jobs to start their own business or for some other reason. The biggest question that arises is what will happen to the money accumulated in the pension fund over those 10-12 years? Will it be lost, or will you benefit from it?

Here's the EPFO rule
The Employees' Provident Fund Organization (EPFO) rules are quite clear on this matter. Your monthly pension eligibility depends on a minimum service period of 10 years. If your total service (including one or more companies) is less than 10 years, you won't be entitled to a monthly pension. However, once you cross the 10-year mark, you become eligible for a pension.

Suppose you worked for 11 years and then left the service. According to EPFO rules, you are eligible for a pension. Your service of more than 10 years has 'locked' your pension. This doesn't mean that you will start receiving your pension immediately upon leaving the job after 11 years. It simply means that you have secured your right.

The rules state that after completing a minimum service of 10 years, you can apply for your monthly pension when you reach the age of 58. This means that even if you leave your job at the age of 40, you will receive your pension only after the age of 58.

How is your money distributed?
According to the rules, an employee contributes 12% of their salary to the EPF fund. Your employer then contributes an equal amount. This money is divided into two parts. 8.33% of this contribution goes to your Employee Pension Scheme (EPS). The remaining 3.67% is deposited into your main EPF account.

The EPF portion is your primary savings, which you can withdraw as per the rules for needs such as buying a house, children's education, marriage, or medical emergencies. However, the 8.33% contribution to EPS is entirely reserved for your monthly pension after retirement. The 10-year service rule applies to this EPS fund.

How is your monthly pension determined?
If you apply for a pension at age 58 after 10 years of service, how much will you receive each month? EPFO uses a fixed formula for this.

Monthly Pension = (Pensionable Salary × Pensionable Service) / 70

Pensionable Service: This is the total number of years you have contributed to your EPS account (e.g., 10 years, 15 years, or 20 years).
Pensionable Salary: This is not your final salary. It is determined by your average salary for the last 60 months (i.e., 5 years) of service. However, there is a ceiling on this salary, which is currently ₹15,000 per month.

Let's understand this with an example. Suppose your 'pensionable service' is 10 years and your 'pensionable salary' (average of the last 60 months) is ₹15,000.

Then your pension will be: (15,000 × 10) / 70 = 1,50,000 / 70 = ₹2,143 (approximately).

This means that based on 10 years of service, you will receive a monthly pension of ₹2,143 at age 58. If you had served this same service for 25 years, your pension would have been (15,000 x 25) / 70 = ₹5,357 per month.

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