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EPFO Pension Calculation: On what basis is the pension received from the EPFO ​​determined? Learn the formula for this.

EPFO Pension Calculation: Millions of employees in the country contribute a portion of their salary to the EPFO ​​every month. This is a significant means of retirement planning, particularly for individuals working in the private sector. Twelve percent of an employee's salary is contributed to their PF.

A portion of this is deposited into the pension scheme, EPS. After retirement, this amount is received as a monthly pension. But the real question is how much pension you will receive and how it is calculated. Let us explain the complete calculation.

When is the pension received?

Every month, 12 percent of an employee's basic salary and DA is deposited into the PF. Of this, 8.33 percent is transferred to the Employee Pension Scheme. While 3.67 percent remains in the PF account, at least 10 years of service is required to receive a pension. According to the rules, a pension normally begins after the age of 58. The number of years you contribute during your job is considered service for your pension. The monthly pension is determined based on this.

What is the pension formula?

EPFO has established a clear formula for determining pension. The formula for calculating monthly pension is: Salary for pension x Service for pension / 70. Here, salary for pension refers to the average salary of your last 60 months. That is, the average salary of the five years before retirement is taken. Service for pension includes the years of your total contribution, provided you have completed at least 10 years. This calculation determines the monthly pension for each employee.

How will the calculation be done?

Suppose an employee's pension salary is ₹15,000 and they have contributed for 10 years. Using the formula, we calculate 15,000 x 10/70. The monthly pension will be approximately ₹2,143. If your salary is higher or your service tenure is 20 or 25 years, your pension will increase proportionately. This means that the longer you contribute and the higher your salary, the higher your monthly pension. Understanding this formula is crucial when planning for retirement.