The Employee Pension Scheme (EPS) provides financial support to employees in the private sector and their families after retirement or death. For those who work in private jobs, a portion of their salary is regularly deposited into the Employee Provident Fund (EPF), with both the employee and employer contributing to this fund. But what happens to the pension after the employee passes away? Let’s break it down.
Employer and Employee Contributions to EPF and Pension Fund
For every private sector employee, 12% of their basic salary and dearness allowance (DA) is contributed to the Employee Provident Fund (EPF) every month. The employer also contributes the same percentage. However, out of the employer’s contribution, 8.33% is transferred to the Employee Pension Scheme (EPS), which is where the pension benefits come from.
The maximum basic salary considered for EPS is Rs 15,000, meaning Rs 1,250 goes to the pension fund each month. If an employee opted for the higher pension scheme, then more is contributed based on the actual salary.
To qualify for the pension, the employee must be a member of EPS for at least 10 years. The pension amount is calculated using this formula:
Pension = (Pensionable Salary x Pensionable Service) / 70,
where Pensionable Salary is the average of the last 60 months’ salary.
What Happens to Pension After the Employee’s Death?
If the employee passes away, their family members become eligible to receive a pension. Whether the employee dies before or after retirement, their dependents (spouse and children) are entitled to receive a family pension.
Here are the key points:
- Widow Pension (Spouse Pension):
The spouse is entitled to receive 50% of the pension amount that the employee would have received. This pension continues until the spouse passes away or remarries. - Children Pension:
If the employee has children under 25 years of age, they are eligible for 25% of the widow’s pension. This support lasts until the child turns 25. - Orphan Pension:
In case the spouse remarries after the employee’s death, the children’s pension will be converted into an orphan pension, which provides a higher amount. Orphan pension is available until the child reaches 25 years of age. - Parents Pension (In Case of Single Employee):
If the employee was unmarried at the time of their death, the pension benefits are transferred to their dependent parents.
Minimum Pension Amount and Special Rules
- Minimum Widow Pension: If the employee dies while still in service, the widow is entitled to a minimum pension of Rs 1,000 per month.
- Higher Pension on Opting for Actual Salary: Employees who opted for a higher pension on their actual basic salary have a larger portion of their salary contributed to the EPS, which means a higher pension payout for the family.
- Eligibility Criteria: If the EPS member contributed to the pension fund at least once before passing away, their family becomes eligible for pension benefits.
Limitations on Pension Nomination
Unlike provident fund accounts, where employees can nominate beneficiaries, pensions under the Employee Pension Scheme (EPS) cannot be transferred or nominated. The pension is strictly reserved for the spouse, children, and dependent parents according to the scheme’s rules.
Family members must also adhere to the age criteria for receiving the pension, and once children reach the age of 25, the pension stops.
By understanding these rules, families of private-sector employees can better prepare and ensure financial security through the EPS program.
