The Employees’ Provident Fund Organisation (EPFO) has announced that it will be changing the method of calculating pensions majorly from 2026. The old method for the Employee Pension Scheme (EPS-95) that considered the last 12-month salary will be replaced by a new one that factors in the average salary of the last 60 months (5 years).
The new pension scheme which is highly controversial will now be directly determining the future monthly pension for lakhs of current and future retirees. Moreover, the change is coming to make the pension amounts less volatile and more stable in the light of the sudden salary rise in the last year.
What Is Going To Change?
The pension to be received under EPS was, up to now, calculated using the average salary of the last year before retiring. By the year 2026, it will be reassessed on the basis of the last 60 months.
It indicates that the calculation of your pension will be based on a bigger salary record.
Why the Government Made This Change
A good number of employees were given considerable salary raises just before their retirement which would then go to determine their pension. That meant there was a disadvantage for the others.
Now the new guidelines will provide equal opportunities and also a sustainable position for the pension fund in the future.
Who Are the People Affected?
This change will take effect for all members of the EPFO who retire on or after the beginning of 2026, the changeover date.
But, those who have already retired and availing pension are not subjected to the rule change – their pensions will be paid as per the old rules.
How Pension Amount Is Determined
- Under EPS, pension = (Pensionable Salary × Pensionable Service) / 70
- Pensionable Salary = average of last 60 months (from 2026)
- Higher average service years and stable salary history = better pension.
Comparison: Old vs New Formula
Here’s a simple comparison table (assuming same service years):
| Aspect | Current Rule (until 2025) | New Rule (2026 onwards) |
|---|---|---|
| Salary considered | Average of last 12 months | Average of last 60 months |
| Impact of last-year jump | Very high (big pension boost) | Much lower (diluted over 5 yrs) |
| Fairness for regular employees | Less fair | More fair |
| Pension stability | Can be volatile | More stable & realistic |
Benefits of the New System
- It stops the artificial inflation of pension caused by last-minutes hikes.
- Long-serving employees with stable careers are treated more equitably.
What To Do Now For Employees?
If you are near retirement, determine if a strategic salary increase in the last year still works (before the rule changes).
Keep paying your contributions regularly and ensure your salary records are correct.
The change in EPFO pension calculation from 2026 to 60-month average salary is a big fair change that makes retirement benefits stable and realistic for most workers.
Today, log in to the EPFO member portal and verify your current contribution history along with your projected pension. Keep yourself informed through the official announcements of EPFO so that you would not have to regret your decision when it is retirement time!