EPFO Subscribers can opt for Higher Pension now
26-08-2023
11:53 AM
1 min read
What’s in today’s article?
- Why in News?
- About Employees’ Pension Scheme
- EPS (Amendment) Scheme, 2014
- Sasikumar Case (2014)
- Supreme Court’s Judgment (November, 2022)
- News Summary
Why in News?
- Subscribers of the Employees’ Provident Fund, who had not opted for higher pension under an earlier window, have been provided another option now.
- In compliance with the Supreme Court’s November 2022 order, the Employees’ Provident Fund Organisation (EPFO) has issued instructions to all its regional and zonal offices on the manner in which employees should apply for higher pensions.
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 RS 15,000.
- In the original scheme, introduced in 1995, this salary limit was RS 6,500.
- Further, the employees were required to contribute at the rate of 1.16% of the salary exceeding RS 15,000 as an additional contribution to the contributions payable by them under the EPF Scheme.
- The maximum pensionable salary was set at RS 15,000 per month.
Sasikumar Case (2014)
- The petitioners in Sasikumar were employees working in different establishments and had approached the Kerala High Court against the EPS (Amendment) Scheme, 2014.
- The petitioners challenged the validity of the EPS Amendment on the ground that it had placed them in an adverse position by making it onerous for them if they contribute towards the pension fund based on their actual salary.
- It was also argued that the cap of Rs 15,000 was unrealistic and had no relation to the actual salaries drawn by employees across the country.
- The Kerala High Court held in the petitioners' favour, observing that nowhere in the EPF Act does it allow an additional rate of interest to be imposed for making contributions based on the actual salary of the employees.
- In view of the above, the Kerala High Court set aside the EPS Amendment along with all consequential orders and proceedings issued by the provident fund authorities based on the EPS Amendment.
Supreme Court’s Judgment (November, 2022)
- The EPFO had appealed against the Kerala High Court’s judgement of quashing the Employees’ Pension (Amendment) Scheme, 2014.
- A three-judge bench of the Supreme Court agreed with the changes brough in by the amendment and said “we do not find any flaw in altering the basis of computation of pensionable salary”.
- The court said the amendments to the scheme shall apply to employees of exempted establishments as they do for the employees of regular establishments.
- There are about 1,300 companies in the list of the EPFO’s (Employees’ Provident Fund Organisation) exempted establishments.
- However, the court held the amendment requiring members to contribute an additional 1.16 per cent of their salary exceeding Rs 15,000 a month as ultra vires the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
News Summary
- In compliance with the Supreme Court’s November, 2022 order, the EPFO has issued instructions to all its regional and zonal offices on the manner in which employees should apply for higher pensions.
- As part of the instructions, the EPFO has now allowed subscribers to go beyond the pensionable salary capped at Rs 15,000 a month on which employers deduct a sum equal to 8.33 per cent of the ‘actual basic salary’ towards pension under the Employee Pension Scheme (EPS).
- Details regarding method of deposit, computation of pension will be shared later, by the EPFO.
- What this essentially means is that an employee and an employer can sign up together, requesting the EPFO to deduct 8.33 per cent of the higher monthly basic salary, thus ensuring larger accumulation towards pension over their work life.
Q1) What is the work of Employees’ Provident Fund Organisation (EPFO)?
The EPFO administers the mandatory provident fund, a basic pension scheme and a disability/death insurance scheme. It also manages social security agreements with other countries.
Q2) What is the meaning of Provident Fund?
Provident Fund is an investment fund contributed to by employees, employers, and (sometimes) the state, out of which a lump sum is provided to each employee on retirement.