1. EPFO threatened by bankruptcy over pension outflow; reason will surprise you

EPFO threatened by bankruptcy over pension outflow; reason will surprise you

The Employees’ Provident Fund Organisation (EPFO) may find it impossible to resist attempts by subscribers to inflate their pension entitlements to levels far beyond its capacity to provide these, raising the spectre of bankruptcy and a grave risk to the monies deposited by millions of workers in the assorted schemes administered by the body.

By: | New Delhi | Published: November 23, 2017 6:26 AM
EPFO, bankruptcy over pension, PSU unions, Supreme Court, EPF corpus,  salary ceiling The EPFO staff, he said, computed the amounts (to be paid by the PSU staff) to be lower. (Reuters)

The Employees’ Provident Fund Organisation (EPFO) may find it impossible to resist attempts by subscribers to inflate their pension entitlements to levels far beyond its capacity to provide these, raising the spectre of bankruptcy and a grave risk to the monies deposited by millions of workers in the assorted schemes administered by the body. The concern follows not only a host of court verdicts, including two by the Supreme Court in 2016, but also the EPFO’s own internal circulars, its other lapses and innumerable precedents. A proviso introduced in the Employees’ Pension Scheme (EPS) 1995, in as early as March 2016, gave members the option to contribute 8.33% of one’s higher actual salary towards pension rather than on a salary ceiling. Since September 2014, the salary for this purpose was capped at Rs 15,000 a month and the ceiling was even lower before that.

Former Central Provident Fund commissioner KK Jalan said around 1-2 lakh people are already receiving pension based on contributions as a share of their higher actual salaries. “Some PSU unions succeeded in getting court orders to the effect employees can even opt for higher contributions to the EPS from a back date,” he said. Jalan added the PSU staff might have received higher pensions without even making the required contributions. The EPFO staff, he said, computed the amounts (to be paid by the PSU staff) to be lower.

The after-effect of all this could be a bankrupt EPFO, the former CPFC warned. While only a few thousand among over 4.7 crore EPF/EPS members have contributed the higher amounts on a monthly basis as the scheme wasn’t really advertised by the EPFO or the labour ministry, following favourable court rulings, many others have secured the higher pension entitlement in recent months. They merely had to pay the difference between the EPS share of 8.33% on the ceiling/s and that on their actual salaries, along with (a benign) interest which cannot be higher than the contribution per se. Central Provident Fund commissioner (CPFC) VP Joy told FE categorically the EPFO doesn’t intend to give the benefit of the March 2016 proviso to those who hadn’t contributed to EPS on their actual salary on a monthly basis. Moreover, since the proviso was discontinued in 2014 via an executive order, Joy said, no member could now deposit more than Rs 1,250 a month (8.33% of Rs 15,000) in the EPS to boost his or her pension corpus.

However, things are not easier for the EPFO as the matter is now being heard in various high courts, since workers and pensioners want to exercise the SC-validated option of paying higher amounts to EPS. Joy said the EPFO would vigorously fight these cases; it has already approached the Supreme Court pleading for a transfer of all related cases across courts to it for final resolution. What is curious is that the EPFO hasn’t really dug its heels in. Jalan told FE, “An executive order might not prevail over a rule — the proviso added to EPS 1995 in March 2016 allowing the option to the employer and employee to make pension contributions on actual salary, rather than on the ceiling prescribed.” In fact, an EPFO circular to regional offices issued on March 23 this year could be interpreted to mean that members could even “divert” their EPF corpus, which is much higher than the EPS fund in the case of private-sector workers with higher salaries, to the latter to fetch a more handsome pension package.

Although the intent of the circular — as Jalan said — was to give effect to the SC verdict, it could be read differently as the labour ministry allowing transfer of EPF corpus to EPS. “The (ministry of labour) vide latter dated 16.03.2017 conveyed its approval to allow members of the EPS 1995, who had contributed on higher wages exceeding the statutory wages ceiling of Rs 6,500 in the Provident Fund to divert 8.33% of the salary exceeding `6,500 to the Pension Fund with up to date interest as declared under EPF Scheme, 1952, from time to time to get the benefit of pension on higher salary on receipt of joint option of the employer and employee,” the EPFO said.

The apex court’s judgement in October last year, setting aside a Himachal Pradesh High Court ruling that was favourable to the EPFO, said the the retirement fund body can’t restrict the higher-pension option to those who exercised it before a “cut-off date” (practically six months since March 2016). While allowing those hadn’t made higher contributions to EPS on a monthly basis to exercise the option later by making lump-sum deposits, the court had said that at best what the EPFO could do was to seek from the member concerned return of all the amounts that she had withdrawn from the PF account before granting the benefit.While the employees’ contribution (12% of basic salary) goes to the EPF, of the employer’s share, 8.33% goes to EPS subject to a salary cap of Rs 15,000 and the balance 3.67% goes to EPF. The central government makes a contribution of

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    M. Md. Najeeb
    Nov 24, 2017 at 7:52 am
    What is the outcome of CBT meeting on 23rd Nov 2017, with respect to payment of higher pension stipulated in SC judgement towards exempted establishment pensioners?
    Reply
    1. Sunil Vaidya
      Nov 23, 2017 at 9:30 pm
      This shows how poorly our country is being managed.
      Reply
      1. R
        Rashmi
        Nov 23, 2017 at 2:29 pm
        Most confusing article. Needs to bere written with the intent to educate readers.
        Reply
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          asok
          Nov 23, 2017 at 11:41 am
          For Indian economy to grow BEEHIVE ECONOMY should be followed in industry or service sector. It is like thousands of bees give one product at only one place .i.e. Honey. Ola is another example.
          Reply
          1. Ramesh B Bhatia
            Nov 23, 2017 at 11:41 am
            Poor planning by Bankers? Economist? Advisers ? They merely had to pay the difference between the EPS share of 8.33 on the ceiling/s and that on their actual ries, along with (a benign) interest which cannot be higher than the contribution per se. Central Provident Fund commissioner (CPFC) VP Joy told FE categorically the EPFO doesn’t intend to give the benefit of the March 2016 proviso to those who hadn’t contributed to EPS on their actual ry on a monthly basis. They have opened their eyes after so many years silence.
            Reply
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              asok
              Nov 23, 2017 at 11:38 am
              This is not Financial administration, rather mischief. The financial discipline should be at least zero budgetting meaning income expenditure. If expenditure is more than income for a fund then that fund will close. It is like aamdani atthani aur kharcha rupiya menaing income 50 paise and expenses 100 paise per month.The management policy and decision making people should correct it.
              Reply
              1. V
                Vijayan
                Nov 24, 2017 at 12:01 pm
                Bankruptcy theory is unbelievable. At present nearly Rs 27000 crores lying in unclaimed account. Where is this money? The whole story is created not to give some enhanced pension to poor EPF pensioners.
                Reply
              2. Sridhara Hiriyannaiah
                Nov 23, 2017 at 11:24 am
                Opposing SC verdict just because it is advantageous to the pensioners who have toiled life long in service of the Nation is not right. EPS has to find out ways to pay pension as per the ruling instead of contesting.
                Reply
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                  Murulidhara H
                  Nov 23, 2017 at 11:00 am
                  Unfortunately, EPS 95 Pension hike has become a 'political tool' as one can see the big speech by BJP leader Prakash Javdedkar given in Jan.2014 while he was in opposition. He pressurized the UPA-II government to fix minimum pension Rs.3000/- with DA linked as the Government was just thinking just for Rs.1000/- minimum. Now, the Prakash is a minister in BJP keeping mum to keep PM FM happy. Dirty politics on this EPS 95 pension issue as lakhs of pensioners are getting less than Rs.1000/- from last more than 10 years. Shame on these politicians who gets all benefits just for on term of 5 years. No funds crunch for them!
                  Reply
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                    rohan
                    Nov 23, 2017 at 10:04 am
                    What about the likly losses in stock market investment ?
                    Reply
                    1. S
                      sk
                      Nov 23, 2017 at 9:15 am
                      When courts give verdict without consulting executive and finance this is what happens. While judicial is a separate pillar of Indian democracy they need to collaborate so their verdict will not create a non-implementable result on the ground.
                      Reply
                      1. R
                        Ramasamy
                        Nov 23, 2017 at 10:11 am
                        It is a betrayal by the EPF Orgn. Even, for those who have given option in time (Proof available--Many people in HP , Kerala got approval for higher contribution in writing during those years) and got approval from PF Orgn in those years, the Pension was sanctioned only based on ry cap. Such course of action led to litigation in many High Courts against EPFO. EPS corpus will never drain as the the Sr citizens will not enjoy higher pension for a long period. Judiciary has ruled according to provisions in scheme knowingly made by Govt ...
                        Reply
                      2. R
                        Ramasamy
                        Nov 23, 2017 at 9:04 am
                        "Central Provident Fund commissioner (CPFC) VP Joy told FE categorically the EPFO doesn’t intend to give the benefit of the March 2016 proviso to those who hadn’t contributed to EPS on their actual ry on a monthly basis." proviso to Scheme rule 11(3) relates to March 1996 and not March 2016 and it is a fact that it was deleted in 2014. EPFO should honor genuine subscribers from Unexempted Estts who have contributed to EPF on actual ry by getting Joint Option now and after getting refund of difference contribution with interest to EPS A/c, since it was denied unofficially for technical fault of declaration on due date. In fact the EPFO did not accept contribution to EPS on actual ry since 1995/96 and simply accepted for 5000 or 6500 only. They did not exercise proper care to regulate the contribution and the proviso to Rule 11(3) introduced by the Govt was made meaningless. They have to abide by the ruling in R.C.Guptha case by the highest judicial body.
                        Reply
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