EPS 2026: Salary hike in last 5 years matters more for pension than 20 years before that; here's why

The Employees' Pension Scheme, 2026, notified by the Ministry of Labour and Employment in June this year, has made the above explicit in paragraph 11. It says, "The pensionable wages shall be the average monthly wages drawn, whether on time-rate or on piece-rate basis, during the contributory period of service in the span of sixty months immediately preceding the date of exit from the membership".

In other words, the 60 months just before a member exits the pension fund, whether through retirement, resignation, or death, is the sole basis for calculating the pensionable wages that would be fed into the pension formula to determine the final pension amount.

Once the pensionable wages are determined, the monthly pension can be calculated using a straightforward formula laid out under paragraph 12 of EPS 2026:

For example, a member whose average pensionable wages work out to ₹15,000 and who has rendered 30 years of pensionable service would receive a monthly pension of approximately ₹6,429. A member with the same wages but only 15 years of service would get ₹3,214, less than half.

EPS 2026 also adds a two-year weightage to pensionable service for members who superannuate with 20 or more years of service under paragraph 10(2), which says: "the pensionable service shall be increased by adding a weightage of two years". This bonus, however, applies only to the service component. The wage figure remains tied to the final 60 months.

The pro rata rule

One key detail in paragraph 11 is that pensionable wages are calculated "on a pro rata basis for every wage ceiling" and are "subject to the maximum of wage ceiling applicable to each of such period".

Since the wage ceiling under EPS has been revised multiple times over the decades, from ₹5,000 to ₹6,500 and then to ₹15,000, the calculation adjusts for each period separately. If a member's 60-month window includes a wage ceiling change, the average is computed proportionately for each ceiling period, capped at the applicable ceiling.

What if wages are iregular?

The scheme anticipates situations where a member may not have drawn full wages during the final 60 months, due to leave without pay, suspension, or partial salary. The proviso to paragraph 11(1) states: "where a member was not in receipt of full wages during the said period of sixty months, the average of the full wages drawn during the preceding sixty months, for which contribution to the Pension Fund was recovered, shall be considered as pensionable wages for calculating pension".

Paragraph 11(2) addresses non-contributory periods within those 60 months: "wages drawn during the span of sixty months shall be divided by the actual number of days for which wages were drawn and the amount so derived shall be multiplied by thirty to determine the average monthly wages".

This means a member who had, say, six months of unpaid leave in the final five years will not be penalised, as the average is recalculated based only on the days for which wages were actually drawn, then normalised to a 30-day month.

However, more wage days do not automatically mean more pension. But pension may rise when the average monthly wage calculated under the formula rises.

Paragraph 11(3) has also added a ceiling: "The maximum pensionable wages shall be limited to the notified wage ceiling per month". Currently, this ceiling stands at Rs 15,000 per month, meaning that even if a member's actual wages in the final 60 months exceeded this figure, the pension calculation would not use the excess amount, unless the member had exercised the joint option under paragraph 11 of the erstwhile EPS 1995 for higher contribution.

Practical implications

Since the pensionable wages are capped at the notified ceiling for each period, a member earning above the ceiling gets no additional pension benefit from salary hikes beyond ₹15,000. But for members at or below the ceiling, maintaining consistent, full-wage employment in the final five years is critical. A promotion, a pay revision, or even regular attendance in those last 60 months directly raises the average, and with it, the pension for the rest of the member's life.