EPFO announces formula for calculating higher pension on actual salary

The long-awaited method of calculating the highest pension on actual salary for those who choose this option is out of use. The final date for submitting a joint application for a higher pension is 26 June

The Employees Provident Fund Organization (EPFO) has announced the method of calculating the pension on the highest salary, instead of the legal limits.

This will be applicable to those opting for a higher pension on actual salary instead of the statutory limit of Rs 15,000 under the Employees Pension Scheme (EPS), 1995. The higher pension will be approved after EPFO ​​field officers check details submitted jointly by employers and employees.

For those who retired before 1 September 2014, the pension will be calculated on the basis of the average monthly salary received 12 months before retirement (or leaving the pension fund).

In the case of those who have retired or will retire after this date, the pension will be calculated on the basis of the average monthly earnings for the 60 months immediately preceding retirement. It is currently calculated as pension = retirement salary (average of the last 60 salary months) x number of years of contributions / 70.

Read also: Claiming a higher EPFO ​​pension? Key factors to consider

26 June, the deadline for filing joint applications

The Supreme Court, in its order of November 2022, which ordered the pension fund institution to enable the highest pension option, had allowed it to retain the right to review the formula for calculating the pension.

For employees, the deadline for choosing the highest pension option under the 1995 Employees Pension Scheme (EPS) is 26 June, which has been extended from the previous 3 May. It will then need to be validated by the employer, followed by the EPFO ​​field officers who will evaluate it. They will verify the data and documentation uploaded and must do so within 20 days of receiving the application.

Read also: Deadline for choosing the highest pension option extended to June 26: Your key questions answered

Check your eligibility

Employees who were members of the EPFO ​​and the Employees Pension Scheme (EPS), prior to 1 September 2014, and who continue to be in service but had not previously chosen the higher pension option can apply for a higher pension . Those who retired before this date and had joined the higher pension option will need to validate their information.

If you decide to opt for a pension on your actual and non-statutory salary of Rs 15,000, you will have to make the decision to submit an application via the online facility on the EPFO ​​member portal.

Currently, the pension is calculated on the statutory salary cap of Rs 15,000. From your employer’s contribution, Rs 1,250 (8.33% of Rs 15,000) goes to EPS. This amount is added to the pool set up pursuant to the EPS for the payment of the ordinary pension to employee-members with at least ten years of service and their dependent family members.

You can, however, now choose to put 8.33 percent of your actual salary into the retirement pool, potentially translating into a higher post-retirement benefit, thanks to the Supreme Court verdict.

Additionally, 1.16 percent of your employer’s contribution will also go into EPS, with the balance of 2.51 percent going to your EPF.

In case you discover errors in your application after submitting your application to request a higher pension, you can cancel it and resubmit it. However, this will not be allowed if your employer has already validated your application.
EPFO officials will then review and approve your application to pave the way for a higher pension.

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