- 21-May-2025
- Elder & Estate Planning law
In India, the maximum pension a person can receive depends on the pension scheme they are enrolled in. Different pension plans, such as the Employees' Pension Scheme (EPS), National Pension System (NPS), and government pensions, have varying contribution rules, benefit structures, and limits. Understanding the pension limits across these schemes is crucial for retirement planning.
Under the Employees' Pension Scheme (EPS), which is part of the Employees' Provident Fund (EPF), the pension one can receive is based on the number of years of service and the average monthly salary (up to a maximum of ₹15,000 per month).
The pension is calculated as 1.16% of the average monthly salary over the last 60 months, multiplied by the number of years of service (up to a maximum of 35 years).
For employees who have completed 35 years of service and have contributed the maximum amount (₹15,000), the maximum pension they can receive is around ₹7,500 per month.
If an employee's average salary over the last 5 years is ₹15,000 and they have worked for 35 years, they would be eligible for the maximum pension of approximately ₹7,500. If their salary is higher than ₹15,000, the excess amount will not be considered for pension calculations.
Unlike the EPS, the National Pension System (NPS) has no upper limit on contributions. This allows individuals to save and invest based on their income and goals.
The maximum pension under the NPS depends on the total corpus accumulated during the individual’s working years. The pension amount can be much higher than the EPS as it is based on market-linked returns, where the individual can choose to invest in equity, government bonds, or corporate bonds.
Upon reaching retirement age, an individual can convert up to 60% of the accumulated corpus into a lump sum, and the remaining 40% must be used to purchase an annuity. The annuity will determine the monthly pension amount.
If an individual contributes ₹50,000 monthly to their NPS account over 30 years, assuming an average annual return of 8%, the accumulated corpus could be substantial, resulting in a higher pension compared to EPS.
Government employees are entitled to a pension based on their last drawn salary or the average salary over the last 10 months. This pension is typically 50% of the last drawn salary.
The pension under government schemes for civil servants is usually half of the last drawn salary. Therefore, there is no upper limit on the pension as it depends on the employee's last salary.
A senior government officer with a last drawn salary of ₹1,00,000 would receive ₹50,000 as monthly pension post-retirement.
In private pension schemes offered by insurance companies or financial institutions, the maximum pension varies depending on the amount invested, the type of pension plan chosen, and the returns generated from the invested corpus.
Some private plans offer guaranteed monthly payouts based on the premium paid and the policyholder's age at the time of starting the annuity. These plans can offer a flexible monthly pension according to the invested corpus.
A person investing ₹1,00,000 in a private annuity scheme may receive a fixed amount depending on the plan terms, such as ₹8,000 per month for life.
The higher your contributions to a pension scheme, the greater the pension benefits you can accumulate. For example, in the NPS, the more you contribute, the larger the corpus will be, leading to a higher pension.
The longer you contribute to a pension scheme (whether EPS, NPS, or government pension), the higher your pension amount will be. In schemes like EPS, the number of years worked impacts the final pension amount.
For schemes like EPS, the pension is also dependent on the salary earned in the last few years of service, with a cap on the salary considered for pension calculation (₹15,000 for EPS).
Different pension schemes have different rules. For example, government pensions are often more generous than EPS, but the flexibility and potential returns of NPS and private pension plans allow for larger pension amounts if managed well.
For market-linked schemes like NPS and private pension plans, the returns generated by the investments (equity, bonds, etc.) will directly influence the amount of pension you will receive.
Scenario: Mr. Singh worked in the private sector and contributed to the Employees' Pension Scheme (EPS) for 30 years. His average salary over the last 5 years was ₹20,000 (the EPS considers a maximum salary of ₹15,000). As a result, his pension under EPS is ₹7,500 per month.
After his retirement, he also invests ₹50,000 per month in the National Pension System (NPS), generating an accumulated corpus of ₹1.5 crore over 30 years. Using 40% of this corpus to purchase an annuity, he could receive a monthly pension of ₹50,000, making his total pension (EPS + NPS) approximately ₹57,500 per month.
The maximum pension a person can receive in India varies significantly based on the scheme they are part of. Under EPS, the maximum pension is capped, and it generally does not exceed ₹7,500 per month for employees who have worked for 35 years. However, under the National Pension System (NPS) and private pension plans, the maximum pension depends on the accumulated corpus, which can be quite substantial, offering more flexibility and potentially higher returns.
Government employees and those who invest in private pension schemes have the opportunity to receive a higher pension, especially if they contribute more during their working years. Balancing various schemes and investment options can lead to a better retirement income.
Answer By Law4u Team
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