Govt’s googly puts those seeking higher EPS pension in a quandary

The government has empowered the EPFO to draw 1.16% additional contribution from the employers 12% contribution into the provident fund. This will result in the employee’s PF account suffering a shortfall of 1.16%, which allegedly runs counter to SC ruling, writes Mudit Mathur

Over a million pensioners covered under the pension schemes of Employees Provident Fund Organisation (EPFO), who retired years back and won a long drawn legal battle in the Supreme Court for their entitlement of higher pension again find themselves on the horns of dilemma over the fresh move of the government. The recent changes notified by the government largely favour employers curtailing benefits accruing to employees. The apex court bench headed by Justice Aniruddha Bose and Justice Aravind Kumar will hear a contempt petition of employees filed by National Confederation of Retirees and 0thers on 12 May.

The Confederation also pointed to technical and operational glitches in the online application form that have not been fixed despite being flagged repeatedly. For a comprehensive understanding of the scheme’s benefit, it is also important that the EPFO clarify the replacement mechanism for the additional 1.16% EPS contribution by employees that was struck down by the Supreme Court in its November 4, 2022 judgment. The EPFO has taken an unexpected decision reducing the pension of around 24,000 pensioners at old level who were getting higher pension by depositing lakhs of rupees with the EPFO.

Taking the stand that since Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) has been subsumed in the Code on Social Security, 2020 (36 of 2020), the government issued notification amending Code on Social Security, 2020. The EPF & MP Act 1952 stood repealed when Code on Social Security, 2020 became operative.

The Central Government on May 3, 2023 notified the deeming provisions with retrospective effect from 1st September, 2014 which provides: (i) in respect of members who have exercised joint option for contributing under the provisions of paragraph 11 of the Employees’ Pension Scheme, 1995 and who are found eligible, the employer’s contribution shall be nine and forty-ninth per cent. (9.49%) of the basic wages, dearness allowance and retaining allowance of each member by increasing one and sixteenth per cent (1.16%) from the extant eight and one-third per cent. (8.33%); and (ii) the increased contribution shall be applicable to basic wages, dearness allowance and retaining allowance to the extent such basic wages, dearness allowance and retaining allowance exceeding fifteen thousand rupees per month.

The two notifications issued by the Union Labour Ministry aimed at implementation of the Supreme Court verdict on higher Provident Fund pension. While one notification empowers the Employees’ Provident Fund Organisation (EPFO) to draw 1.16% additional contribution from within the overall 12% of the contribution of the employers into the provident fund, the second notification notifies the relevant provisions in the Code on Social Security to legalise this step. The provision will be implemented in retrospect and employers will contribute 8.33% on entire wages and 1.16% on wages from September 1, 2014.

However, the legal experts who have been involved in the battle for higher pension expressed their apprehensions over the government move and termed it a “brutal attack” on the EPF pension beneficiaries. Explaining the nitty-gritty of effect of amendments, the lawyer appearing for the pensioners, S. Krishna Moorthy, said, “The Supreme Court had held that the 1.16% on the amount in excess of Rs.15,000 levied from the employees to enable them to get enhanced pension on actual salary was ultra vires.”

“The employees were directed to continue that additional payment for six months within which period the Union government was authorised to bring in necessary changes in the Scheme to meet the requirements, including additional contributions from employers. But what has now been done is that 9.49% of the employer’s share of 12% is directed to be remitted to the pension fund instead of the present 8.33%. Only the remaining 2.51% will get credited to PF account instead of 3.67%. The loser is the employee, not the employer. His PF account will suffer a shortfall of 1.16%. The interest on PF accumulations also will reduce to that extent,” explained Moorthy, saying, “The move is a brutal attack on EPF pensioners. It is a very intelligent protection to the employers under the guise of apex court judgement.”

The labour ministry in a press communique claimed that the spirit of the EPF & MP Act as well as the Code (Code on Social Security) do not envisage contribution from the employees into the pension fund. At present, the government pays 1.16 per cent of basic wages of up to Rs 15,000 (threshold basic wage) as subsidy for contribution towards Employees’ Pension Scheme (EPS). The employers contribute 12 per cent of basic wages towards social security schemes run by the EPFO. As much as 8.33 per cent out of the 12 per cent contributed by the employers goes into the EPS and the remaining 3.67 per cent is credited into the Employees Provident Fund.

“Now all those EPFO members who are opting to contribute on their actual basic wage which is higher than the threshold of Rs 15,000 per month for getting higher pension, will not have to contribute this additional 1.16 per cent towards EPS. This provision is retrospective in nature in line with the directions given by the Supreme Court,” the ministry said.

The Supreme Court had held the requirement of the members to contribute at the rate of 1.16 per cent of their salary to the extent such salary exceed Rs 15000 per month as an additional contribution under the amended scheme to be ultra vires of the provisions of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF & MP Act).The ministry said that with the issue of the notifications, all the directions of the Supreme Court contained in judgment on November 4, 2022 have been complied with.

Meanwhile, the Labour Ministry has notified the extension of the last day to June 26, 2023, just one day prior to the previous last date, May 3, 2023, for submission of request for higher pension. The Employees’ Provident Fund Organisation (EPFO), the body which governs EPF and EPS, extended the date to provide ample time and opportunity for the members to exercise their options.

What is EPS?

The Employee Pension Scheme (EPS) is a social security scheme for contributing members to get a secured pension upon retirement at 58 years of age. The scheme was launched in 1995.The employees enrolled in the Employees’ Provident Fund (EPF) scheme are automatically enrolled in the EPS scheme. The minimum monthly pension is Rs 1,000.

Eligibility for availing benefits under EPS

To avail of the pension benefits under EPS, the person should be a member of the EPFO. The employee has to provide service to the organisation/s for at least 10 years. The member must have reached the age of 58 years or in case of early retirement, the age of 50 years.

How Much an Employee and Employer can contribute?

Both employee and employer contribute 12 per cent of the employee’s basic salary and dearness allowance to the EPFO. The employee’s full contribution goes towards EPF, whereas the employer’s contribution is divided between EPF and EPS in the ratio of 3.67 per cent and 8.33 per cent, respectively.

Earlier, EPFO would calculate the pension considering the statutory wage ceiling of Rs 15,000, but after the Supreme Court decision in November 2022, those who were members of EPS can opt for a higher pension based on their actual wage instead of the statutory wage limit i.e., Rs 15,000. All EPS contributions can be done only by the employer. Also, note that the increased contribution in pension would mean a decrease in EPF corpus for the employee.

Who are eligible for higher pension?

Notably, the choice of opting for a higher pension is only for eligible members, i.e., the employees who were members of the Employees’ Pension Scheme (EPS) as on September 1, 2014. “According to the Supreme Court order, following category of employees cannot opt for higher pension, 1) Employees who had retired prior to September 1, 2014, without exercising their option for higher/ uncapped pension under 11(3); and 2) Employees who had joined on or after September 1, 2014, with a salary over Rs. 15,000 per month,” explains the PF consultants.

Withdrawal and monthly pension:

EPS is the monthly payment to the pensioner from the amount contributed over the years till the time they are alive. After retirement, one gets the EPF corpus in a lump sum with interest. But for the EPS, one receives a regular pension every month after retirement instead of a lump sum. The regular pension starts after the member attains 58 years of age or after 50 in case of early retirement.

One can withdraw the entire EPS amount in case a total of 10 years of service is not completed. In case of the member’s death while in service, the family gets the pension benefits.

Widow Pension: After the member’s death, a pension is given to the spouse as a widow/widower pension at 50 per cent of the eligible amount. Where the member dies while in service, or after the date of exit but before attaining 58 years of age, the widow will get full pension, but where the member dies after commencement of pension, the monthly pension will be 50 per cent of the pension amount thereof.

Child Pension: The surviving children, a maximum of two, can avail of benefits of a child pension which is 25 per cent of the widow pension. It is in addition to the monthly widow/widower pension.

Orphan Pension: Where the member dies, and there is no surviving widow, children are eligible to get a pension at 75 per cent of the widow’s pension until they are 25 years of age. This can be availed by two children.

Reduced Pension: If the member is more than 50 years but has not reached 58 years, the pension can be availed at a reduced rate. EPS offers a monthly and secure government-guaranteed pension. But one thing to keep in mind is that while the PF one gets after retirement is tax-free, the monthly pension is taxable.

Experts have pointed out that it is essential, before one opts in, to understand how much of the provident fund corpus will be transferred to the EPS scheme to avail higher pension, and how interest earned between 2014 and now will be adjusted. Since EPFO wants an undertaking from subscribers to calculate pension through a formula that has still not been notified, experts say the pension fund manager must also specifically clarify whether an applicant will be allowed to withdraw consent for higher pension once the pension fund manager raises a demand for funds and if they find that the actual cost-benefit analysis is not in their favour.

Earlier, Atul Sobti, a member of the EPFO’s central board of trustees, and director general of Scope, the representative body of public sector enterprises, had written to CPFC with a 13-point annexure pointing out problems applicants are facing while applying online. Seeking an extension of the deadline by at least a month, Sobti also sought clarity from EPFO on the requirement of furnishing prior permission under Para 26(6) which the Kerala high court had struck down.

Subsequently, 10 Central Trade Unions, National Confederation of Retirees and CPI MP BinoyViswam have written to Union Labour Minister Bhupender Yadav and CPFC Neelam Shami Rao seeking an extension of the deadline for application as well as a detailed clarification from EPFO on all aspects of the higher pension scheme so that subscribers can make an informed decision before signing up.