Issues Faced by EPFO Pensioners

What’s in today’s article?

• Background
• Current Pension Payment System
• Introduction of Centralised Pension Payment System (CPPS)
• Pensioners’ Reactions to CPPS
• Dissatisfaction with Pension Amount
• Government’s Financial Constraints
• EPFO’s Position on Higher Wage Pensions
• Way Forward
• About Employees’ Pension Scheme
• EPS (Amendment) Scheme, 2014

Background

• The Employees' Provident Fund Organisation (EPFO) pensioners have been facing various challenges.
• This is despite the Union Labour Ministry’s recent approval for the Centralised Pension Payment System (CPPS), expected to be implemented by January 2025.
• While the initiative aims to ease some issues, many concerns remain unresolved for the 78 lakh Provident Fund (PF) pensioners under the Employees’ Pension Scheme, 1995 (EPS-95).

Current Pension Payment System

• Currently, EPFO pensioners are required to transfer their Pension Payment Orders (PPO) when they relocate, leading to delays in pension disbursement.
• The pension can only be drawn through a limited number of empaneled banks in specific regions.
• This process has been inconvenient for many pensioners.

Introduction of Centralised Pension Payment System (CPPS)

• The CPPS aims to simplify the pension process by allowing pensioners to receive their pensions through any bank, in any branch, across the country starting from January 2025.
• It will eventually transition to an Aadhaar-based system, eliminating the need for physical verification.
• This change is expected to reduce the costs of pension disbursement significantly.

Pensioners’ Reactions to CPPS

• While pensioners have welcomed the move, they remain cautious, awaiting further details on the practical implementation.
• K.P. Babu, the general secretary of the Chennai EPF Pensioners’ Welfare Association, noted that most pensioners already use ATMs for withdrawals due to the core banking system.
• The actual benefits of the new system will only be clear after implementation.

Dissatisfaction with Pension Amount

• Pensioners are dissatisfied with the government's failure to address long-standing demands for a unified pension scheme.
• They had expected a system combining features from the Old Pension Scheme (OPS) and the New Pension Scheme (NPS).
• Trade unions and Members of Parliament have been advocating for an increase in the minimum pension, which has remained at ₹1,000 for several years.
• Associations like the Chennai EPF Pensioners’ Welfare Association have been demanding a minimum pension of ₹9,000, including dearness allowance (DA).
• Processing of Pension on Higher Wages:
  • Pensioners and PF members are also frustrated with delays in processing applications for pensions based on higher wages, a right granted by the Supreme Court in 2022.
  • Despite this ruling, many pensioners have yet to see any significant changes. As of August 2024, out of the 17.5 lakh applications submitted online, only 8,401 had been processed, and approximately 1.5 lakh applications were rejected.
  • EPFO has sent demand notices to 89,235 applicants, requesting the transfer of arrears.

Government’s Financial Constraints

• The Union government has cited financial limitations as the primary reason for not increasing the minimum pension amount.
• The government contributes 1.16% of employees' basic wages to the Pension Scheme and allocates a significant budget to ensure pension payments.
• In 2023-24, the government’s contribution was ₹9,760 crore, and for 2024-25, it is expected to be ₹10,950 crore.
• However, despite these contributions, there is uncertainty about how much the government can raise the minimum pension.

EPFO’s Position on Higher Wage Pensions

• The EPFO has historically opposed the idea of providing pensions based on higher wages, arguing that the EPS-95 was designed for economically weaker workers.
• The organisation believes that granting pensions to high-wage earners would jeopardize the sustainability of the Pension Fund.
• However, the fund has not faced any immediate cash flow issues, despite actuarial deficit projections.
• Pensioners have also criticized the EPFO for demanding outdated documents from them.

Way Forward

• To address these challenges, the government must increase its contributions to EPS-95 and revise the wage ceiling for Provident Fund contributions, which has remained at ₹15,000 for the last decade.
• A proposal to allow employees to choose between investing in the EPF or NPS, suggested by former Finance Minister Arun Jaitley in 2015, could also offer better returns on investment.
• Additionally, the exclusion of employees who joined after September 1, 2014, from the EPS-95 should be reconsidered to ensure that all employees are eligible for pensions, regardless of their earnings.

About Employees’ Pension Scheme

• EPF Pension which is technically known as Employees’ Pension Scheme (EPS), is a social security scheme provided by the Employees’ Provident Fund Organisation (EPFO).
  • The scheme was first launched in 1995.
• The scheme makes provisions for employees working in the organized sector for a pension after their retirement at the age of 58 years.

EPS (Amendment) Scheme, 2014

• Through the EPS Amendment which became effective from 1 September 2014, the conditions of membership of the EPS Scheme underwent a change.
• Through the amendment, the EPS scheme was now applicable to such employees who on or after 16 November 1995 became a member of the EPF Scheme and whose monthly salary on the date of joining was less than or equal to ₹15,000.
  • In the original scheme, introduced in 1995, this salary limit was ₹6,500.

Q1. When was EPFO established?

The EPF & MP Act, 1952 was enacted by Parliament and came into force with effect from 4th March,1952. A series of legislative interventions were made in this direction, including the Employees Provident Funds & Miscellaneous Provisions Act, 1952.

Q2. What is the Old Pension Scheme?

The Old Pension Scheme (OPS) is a retirement scheme approved by the government. Government employees receive a monthly pension under the OPS. It provides a guaranteed pension for government employees who have completed at least ten years of service based on their last drawn basic salary and the years of service.

Source: What are the issues faced by EPFO pensioners?