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Every month, a portion of your salary is deducted for PF (Provident Fund), but most salaried individuals don't know where this money goes and how much they will receive after retirement. Many people believe that the entire amount deposited in their PF account will become their pension, but the reality is quite different. EPF and EPS are two separate systems with different rules, benefits, and calculations. If you don't understand them correctly, your income at retirement could be much less than expected.

Why is the pension so low after retirement when money is deducted from the salary every month?
Answer: Because most people don't understand that:

PF and EPS are two different systems.
The EPS pension depends on a formula, not on the deposited amount.

What are PF and EPS?
What is EPF (Provident Fund)?

EPF, or Employees' Provident Fund, is a long-term savings scheme managed by the Employees’ Provident Fund Organisation.

What is its purpose?

To accumulate savings during employment.
To provide the facility to withdraw the entire amount upon retirement, leaving the job, or in case of need.
Key points:

Employee contribution - 12% of Basic + DA
Employer contribution - 12%
Interest is earned on the deposited amount every year.

What is EPS (Employee Pension Scheme)?
EPS, or Employee Pension Scheme, has a completely different purpose.

What is it for?

To provide a fixed monthly pension after retirement.
To ensure a regular income in old age.
In EPS, you don't receive a lump sum, but a monthly pension.
Does all the money deducted from the salary go into the PF?
No. This is where the biggest confusion arises.

The money is distributed as follows:

Employee's 12% goes entirely to EPF.
Employer's 12% is divided as follows:
8.33% to EPS (Pension Fund)
3.67% to EPF
Salary limit

Maximum salary cap for EPS - ₹15,000
Even if the salary is higher, the pension will be calculated based on this limit.
Will the pension be equal to the amount deposited in EPS?
The direct answer: No. EPS Pension:

Does not depend on the amount deposited in your account
But it is determined by a fixed formula
Q5. What is the formula for EPS pension?
Pensionable salary * Pensionable service / 70
Where-

Pensionable salary = Maximum ₹15,000
Pensionable service = Total years of contribution to EPS
Let's understand with an example-

Pensionable salary: ₹15,000
Pensionable service: 35 years
Pension = 15,000*35/70 (15 thousand multiplied by 35 and then divided by 70)
₹7,500 per month

What does the family receive after the employee's death?
The biggest benefit of EPS is the family pension.

What do the rules say?
50% of the pension to the spouse for life
25% each to two children
Children receive this benefit until the age of 25
Family Pension

If the employee's pension is ₹7,500, then
The spouse will receive ₹3,750 per month
If the children are orphaned, the pension will increase to 75% (i.e., if both parents are deceased)
The government has fixed the minimum pension at ₹1,000.

Is a pension only available after 58 years of age?
Usually yes, but options are available.

Options-

Early pension after 50 years of age
4% reduction for each year
For deferring pension after 58
4% increase for each year
What does this mean for you?
If you are a salaried employee, then-

Your EPS pension is limited, regardless of your salary
Relying solely on PF is not enough for retirement
You must do additional retirement planning
Why is this important to understand?

Most employees have wrong expectations regarding the pension
Income suddenly decreases after retirement
If you don't plan at the right time, your lifestyle will be affected
What is the right way? What is the right approach?
One who understands the limitations of EPS and invests accordingly from the beginning
One who combines PF with NPS, SIPs, and pension plans

What is the wrong approach?
One who relies solely on the EPS pension
One who starts retirement planning late
What should every employee do?
Definitely check your PF and EPS statements
Estimate how much pension you will receive
Start additional investments early
Think of retirement as salary replacement

PF and EPS are definitely the base of security, but not the complete solution.
EPS provides you with a pension, but it's limited.
Therefore, it is wise to take responsibility for your retirement promptly.
A secure retirement is one for which preparation begins alongside your job.

Frequently Asked Questions - FAQs
Q1. Does EPS provide a lump sum payment?

No, EPS only provides a monthly pension.

Q2. Do you get a higher pension with a higher salary?

No, the pension is capped at the ₹15,000 limit.

Q3. When does the EPS pension start?

Usually, after the age of 58.

Q4. Is it advisable to take an early pension?

You can take it if needed, but it's important to understand the deductions.

Q5. Is EPS alone sufficient for retirement?

No, additional investments are necessary.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.