With the Employees’ Provident Fund Organisation (EPFO) yet to issue any guidelines after the Supreme Court’s judgment on higher pension last month, the All India EPF Staff Federation has written to the Central Provident Fund Commissioner (CPFC), seeking clarity on details including the formula to calculate pension, and the options available to subscribers who retired after September 2014.
What has the EPF Staff Federation said in its letter to the head of EPFO?
Federation Secretary General R Krupakaran has complained to CPFC Neelam Shami Rao that “the Pension Division of Head Office is yet to issue any direction/guidelines so as to deal with the higher pension cases in line with the SC order”, and that field offices were finding it difficult to answer queries from members and pensioners. The federation has also asked for increasing staff as the workload of each office is expected to rise “manifold” once the SC order is implemented.
What did the Supreme Court say in November?
On November 4, a three-judge Bench of then Chief Justice of India U U Lalit, and Justices Aniruddha Bose and Sudhanshu Dhulia, upheld the Employees’ Pension (Amendment) Scheme, 2014, and 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 exempted establishments.
The SC allowed another opportunity to EPFO members who have availed of the Employees’ Pension Scheme (EPS), to opt for higher annuity over the next four months. Employees who were existing EPS members as on September 1, 2014 can contribute up to 8.33 per cent of their ‘actual’ salaries — as against 8.33 per cent of the pensionable salary capped at Rs 15,000 every month — towards pension.
Exercising its power under Article 142, the SC extended the time to opt for the new scheme by four months. “There was uncertainty regarding the validity of the post amendment scheme, which was quashed by the High Courts. Thus, all employees who did not exercise the option but are entitled to do so, but could not due to interpretation of the cut-off date, ought to be given certain adjustments,” the SC said.
Under the pre-amendment scheme, the pensionable salary was computed as the average of the salary drawn during the 12 months prior to exit from membership of the Pension Fund. The amendments raised this to an average of 60 months prior to exit from the membership of the Pension Fund.
The court agreed with the changes. It said, “We do not find any flaw in altering the basis of computation of pensionable salary.” However, it 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. The bench said it is suspending the operation of this part of the judgment for six months “so that the legislature may consider the necessity of bringing appropriate legislative amendment on this count”.
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 originally did not provide for any pension scheme. In 1995, through an amendment, a scheme was formulated for employees’ pension, wherein the pension fund was to comprise a deposit of 8.33 per cent of the employers’ contribution to be made towards the provident fund corpus. At that time, the maximum pensionable salary was Rs 5,000 per month, which was later raised to Rs 6,500.
The EPS, which is administered by the EPFO, aims to provide employees with pension after the age of 58. Both the employee and the employer contribute 12 per cent of the employee’s basic salary and dearness allowance to the EPF. The employee’s entire part goes to EPF, while the 12 per cent contribution made by the employer is split as 3.67 per cent contribution to EPF and 8.33 per cent contribution to EPS. Apart from this, the Government of India contributes 1.16 per cent as well for an employee’s pension. Employees do not contribute to the pension scheme.
What was the amendment in 2014?
The EPS amendment of August 22, 2014 had raised the pensionable salary cap to Rs 15,000 a month from Rs 6,500 a month, and allowed members along with their employers to contribute 8.33 per cent on their actual salaries (if it exceeded the cap) towards the EPS. It gave all EPS members, as on September 1, 2014, six months to opt for the amended scheme. This was extendable by another six months at the discretion of the Regional Provident Fund Commissioner.
The amendment, however, required such members (with actual salaries over Rs 15,000 a month) to contribute an additional 1.16 per cent of their salary exceeding Rs 15,000 a month towards the pension fund.
Those who did not exercise the option within the stipulated period or extended period, were deemed to have not opted for contribution over the pensionable salary cap and the extra contributions already made to the pension fund were to be diverted to the Provident Fund account of the member, along with interest.
Referring to the case of RC Gupta dealing with the pre-2014 position of the scheme, the Supreme Court observed that a beneficial scheme ought not be allowed to be defeated by reference to a cut-off date in a situation where the employer was not following the ceiling limit of Rs 5,000 or Rs 6,500, and had deposited 12 per cent of the actual salary.
What did earlier court judgments say on this issue?
The High Courts of Delhi, Kerala, and Rajasthan have earlier given judgments on this matter. The Kerala High Court in its judgment delivered on October 12, 2018 set aside the EPS (Amendment) Scheme, 2014.
The Delhi High Court in its judgment on May 22, 2019 followed the view expressed by the Kerala High Court and quashed a circular issued by the provident fund authorities on May 31, 2017, precluding exempted establishments from the benefits of higher pension.
In a decision on August 28, 2019, the Rajasthan High Court also expressed the same opinion.
As many as 54 writ petitions have been filed by employees belonging to both exempt and unexempt establishments under Article 32 of the Constitution seeking invalidation of the notification of August 22, 2014.
What does the SC order mean for members and employers?
Members and employers now have four months to opt for a pension scheme linked to actual salaries but the EPFO is yet to issue any guidelines for this. Only a negligible percentage of EPFO members – with salaries higher than the Rs 15,000 a month pensionable salary cap – had earlier opted for contributions based on their actual salaries.
This would essentially imply higher annuity after retirement. Experts said that in times of higher inflation and actual salaries having risen way beyond the pensionable salary cap of Rs 15,000, this would provide a better social security cover for workers after retirement.
The EPS amendment meant that existing members had to contribute the additional 1.16 per cent if they opted for pension linked to actual salaries. Otherwise, as per the scheme, the government pays this 1.16 per cent of the pay of the members as contribution in the pension fund of workers. So, the EPFO will have to find ways to fund this additional contribution.
As a possible measure, experts said that the government may have to rework the contribution distribution between provident fund and pension.
Till the time any legislative amendment is brought to the scheme to determine the funding of this additional 1.16 per cent for the opting members, the SC said this contribution shall be adjusted depending on any amendment that may be brought.
For the period of six months, however, the opting employees shall make payment of 1.16 per cent contribution as a stop-gap measure, and if no amendment is brought within this time, the administrators of the fund will have to operate the pension fund for the opting members out of the existing corpus.