EPS rule for calculating lump sum withdrawal amount on early exit changed - Hindustan Times
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EPS rule for calculating lump sum withdrawal amount on early exit changed

By | Edited by Abhyjith K. Ashokan
Jun 17, 2024 09:01 PM IST

Members of Employees' Pension Scheme (EPS) can withdraw the lumpsum amount if they exit the scheme before the completion of 10 years.

The Ministry of Labour and Employment issued two notifications amending the rules under the Employees' Pension Scheme (EPS), with one of the notifications dealing with the lumpsum payment from the EPS scheme when a member quits before completion of 10 years, the Economic Times wrote.

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Representational

Another notification is for those employees who are eligible to receive pension under the Family Pension Scheme which existed before EPS, according to the article.

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Lumpsum withdrawal

The notification has revised 'Table D' which is used to calculate the lumpsum payment an employee is eligible to receive if he/she quits the pension scheme before completion of 10 years.

“Earlier, if the employee was a member of pension scheme for say 4 years 7 months, lumpsum benefit would be received basis 5 years of service," Puneet Gupta, Partner, People Advisory Services, EY India told the Economic Times. "Now, the employee will receive lumpsum benefit basis 55 months of service. This may reduce the amount of benefit marginally.”

According to Employees' Pension Scheme rules, a member of EPS is eligible to receive pension provided he/she has completed 10 years of eligible service.

If an employee leaves EPS scheme before completion of 10 years, then a lumpsum payment is given instead of pension due to early exit from EPS.

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The lumpsum withdrawal benefit is now calculated on the basis of the months of service completed by an individual. As per the earlier 'Table D,' the withdrawal benefit was calculated on the basis of number of years of service completed.

Gupta explains with an example on how lumpsum pension will be calculated going forward. “Suppose an EPS member has completed 6 years and 8 months i.e. 80 months of service. As per the new rules, the lumpsum benefit will be calculated as equal to 'Wages at the time of exit (i.e. 15,000 for example) multiplied by the return on contribution as per 'Table D'. For 80 months' service, an individual will receive 1,01,700 ( 15,000 X 6.78).”

"In the old rules, service exceeding 6 months was considered as one completed year. Hence, in the above example, 6 years and 8 months would have been considered as 7 years (i.e., 84 months). The lump sum payment would have been, as per old rules, 1,06,950 ( 15,000 X 7.13). At the same time, for broken service period of up to 5 months where there was no benefit earlier, the employee will receive proportionate lumpsum benefit for such period also," Gupta adds.

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Family Pension Scheme

Pension benefits for members who are eligible for pension under the Family Pension Scheme are calculated on the basis of a 'factor'. EPFO has 'Table B' which assigns a number (called 'Factor') on the basis of number of years completed.

This 'factor' varies with the number of years of service which can be seen in the table below. This number or factor is used to calculate the pension benefits due to him/her as per the number of years of service.

Earlier, 'Table B' provided this 'factor' (numbers) for members who completed only up to 34 years of service. There was no 'factor' provided for those who have completed more than 34 years of service.

Gupta says, "The amendment in the 'Table B' is for EPS members who were covered under Family Pension Scheme before 16 November 1995 and have completed more than 34 years of service but less than 42 years during the period between 16 November 1995 to date of exit from EPS.

The new amendment may help in estimating EPFO's pension liability for the employees covered under Family Pension Scheme earlier and likely to exit from the year 2029 onwards."

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