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Explained: Proposal to tweak pension scheme, and what it means for EPFO subscribers

Retirement fund body EPFO is weighing the option of tweaking the pension scheme for organised sector workers with monthly basic wages of over Rs 15,000 and are not mandatorily covered under its EPS-95.

EPFO members have been demanding higher pension on higher contributions. (File Photo)

The next EPFO Board meeting is likely to take up a proposal to tweak the pension scheme so as to expand it and bring in more subscribers. The meeting, scheduled for March 11-12, will also take up the interest rate proposal for FY22 and the sub-committee report on pension scheme.

What is being proposed?

Retirement fund body EPFO is weighing the option of tweaking the pension scheme for organised sector workers with monthly basic wages of over Rs 15,000 and are not mandatorily covered under its Employees’ Pension Scheme 1995 (EPS-95). At present, all those employees in the organised sector whose basic wage (basic pay plus dearness allowance) is up to Rs 15,000 per month at the time of joining service are mandatorily covered under EPS-95.

The proposal on this new pension scheme is expected to come up for discussion in the meeting of EPFO’s apex decision making body Central Board of Trustees (CBT) at the meeting in Guwahati.

During the meet, a sub-committee constituted by the CBT on pension related issues in November 2021 would also submit its report.

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What does it mean for EPFO subscribers?

EPFO subscribers who are getting more than Rs 15,000 monthly basic wages are forced to contribute lower (at the rate of 8.33 per cent of Rs 15,000 per month into EPS-95) and thus, they get lower pension. The EPFO had amended the scheme in 2014 to cap monthly pensionable basic wages to Rs 15,000. The threshold of Rs 15,000 applies only at the time of joining service. It was revised upward from Rs 6,500 from September 1, 2014 in view of price rise and pay revisions in the formal sector.

EPFO members have been demanding higher pension on higher contributions. Raising pensionable pay could have brought more formal sector workers under the ambit of EPS-95. The proposal to hike pensionable salary limit by the EPFO was considered earlier but never acted upon.

Currently, the retirement fund body plans to include those formal sector workers who are excluded from the EPS-95 due to higher basic wages without raising the pensionable pay limit from Rs 15,000.

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First published on: 23-02-2022 at 11:23:59 am
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