Supreme Court Upholds HC Judgment for Higher Pension in Employees’ Pension Scheme
In April 2019, the Supreme Court ruled out in favour of a 2018 Kerala High Court order that had asked the Employees Provident Fund Organisation (EPFO) to give pension to all retiring employees on the basis of their full salary in place of capping the figure on which contribution is calculated at a maximum of ` 15,000 per month. The judgement, given by a bench comprising CJI Ranjan Gogoi, Justice Deepak Gupta, and Justice Sanjiv Khanna, has thus ensured higher pension for all private-sector employees.
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The development will lead to increase in the pension of private sector employees under the Employees’ Pension Scheme (EPS), 1995.
With this judgement, while the pension will increase, the PF corpus will be reduced since the extra contribution will go to EPS and not PF.
The government’s Employees’ Pension Scheme (EPS) was introduced in 1995 for the employees of organised sector, applicable to all employees, covered under the EPF scheme. Under EPS, pension is provided to people on a permanent basis. The scheme covers all the employees receiving a monthly salary along with PA of ` 15,000 or lesser.
As of today, all employees in the organised sector contribute 12 per cent of their salary (basic salary + DA) to the EPF. The employer makes an equivalent contribution, of which 8.33 per cent goes to the EPS, subject to a salary cap of ` 15,000.
The EPS Act underwent an amendment in March 1996. This enabled members to raise the amount under EPS to 8.33 per cent of their full salary (basic + DA), thereby doing away with the cap on salary and raising the pension amount exponentially.
In 2014 also, the EPFO again amended the EPS to increase wage ceiling for coverage to the current cap and to bring major changes. As such, new employees having salary exceeding
` 15,000 per month became ineligible for the EPS. While existing employees who were members of the EPS as on September 1, 2014, had a choice to contribute on higher salary for which they needed to place a joint request along with their respective employers by a specific deadline. As per the changed norms, pensionable salary would be calculated as the average of the last five years’ monthly salary, and not of 12 months. This resulted in the reduction of the pension of many employees.
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The apex court came to the rescue of pensioners affected by the amendment and in October 2016 ruled that the EPFO cannot undermine the interests of pensioners by restricting their option of higher pension as was exercised by them before the cut-off date. In addition to this, the court also allowed those who had not made higher contributions to the EPS on a monthly basis to exercise the option by making lumpsum deposits of the differential amount due (difference between EPS contribution they made while in service and the contribution they would have made had it been pegged to their full salary).
But the EPFO had been slow to implement the order, owing to the sheer volume of demands raised. Then, in 2018, the Kerala High Court set aside the 2014 amendment, and reinstated the old system of calculating the pensionable salary as the average of the last one year’s monthly salary. The verdict has the backing of the Supreme Court.
In fact, several other high courts, including Rajasthan, Andhra Pradesh, Madras, etc. directed the EPFO to follow the order. The matter is finally settled now with the verdict of the Supreme Court.
Employees who began working after September 1, 2014, will reportedly also be able to avail the benefit of pension on full salary.
Therefore, an employee earning ` 50,000 per month with 33 years of service will now be eligible for a pension of ` 25,000 per month up from just ` 5,180 previously.
Likewise, an employee with 20 years of service with a monthly salary of ` 1 lakh will bag a pension of ` 28,571 per month instead of ` 2,100.
——Sidelight—-
Employees’ Pension Scheme (EPS) 1995
* The Employees’ Pension Scheme (EPS) was introduced in 1995. Under the scheme, an employer was supposed to contribute 8.33 per cent of the employee’s salary in a pension scheme. But the contribution was capped at 8.33 per cent of ` 6,500 (or ` 541 per month).
* The act was amended in March 1996 and a percentage of the actual salary was allowed as the contribution, provided the employee and employer had no objection.
* Members of EPFO get pension benefits when retiring at the age of 58.
* Minimum service period for availing benefits under EPS is ten years.
* Form 10D gives facility to apply for a monthly pension after retirement.
* Form 10C is used to withdraw EPS amount.
Calculation
* In the present system, ` 1,250 (8.33 per cent) is contributed of ` 15,000, which is the maximum salary for pension.
* Since the employer contributes 8.33 per cent of this salary in the employee’s EPS account, the amount deposited in the EPS account of the employee every month is ` 15,000 × 8.33/100 = ` 1,250.
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