1. Good news! EPFO subscribers pensions may rise 10 times, but there’s a big catch

Good news! EPFO subscribers pensions may rise 10 times, but there’s a big catch

The SC court ruling has already resulted in a windfall for some of the pensioners as their pension has increased by more than 10 times.

By: | Updated: November 25, 2017 11:27 AM
SC ruling over hike in pension, EPFO subscribers, pensions may rise 10 times, private sector employees, EPS, EPF, EPFO amendment in 1996 The Pension scheme restricts the pay for the purpose of pension contribution to the wage ceiling.

The Supreme Court ruling over hike in pension may benefit crores of private sector employees, but only if retirement body Employees’ Provident Fund Organisation (EPFO) agrees to extend the additional pension benefit to all. In fact, the SC in a case filed by a private sector employee had ruled in 2016 that pension of the filing parties under EPF should be revised as per the amendment done in 1996 by EPFO.

“As per this amendment, EPFO members were allowed to raise pension contribution to 8.33% of full salary (basic + DA) irrespective of what the salary was. However, EPFO didn’t implement this even when the private sector employers approached it, and said that response from the concerned parties should have arrived within six months of the said amendment. Then 12 private sector employees approached the Supreme Court and the court directed EPFO to change their pension scheme as per the amendment,” says Jitendra P S Solanki, MCSI, CTEP, CFP and Financial Planner for Special Needs Dependent Families.

Thankfully, the court ruling has already resulted in a windfall for some of the pensioners as their pension has increased by more than 10 times. The question, however, is: What will be the impact of the SC ruling and will it benefit all the private sector employees? However, let us first take a look at EPS, EPF and what salaried people are entitled to.

What is EPS (Employee Pension Scheme 1995)?

Out of the total contribution of 12% of pay being made by the employer, 8.33% is mandatorily diverted to an Employee Pension Scheme (EPS). The balance of 3.67% of employer contribution along with 12% of employee contribution is remitted to the Provident Fund (EPF). “Pay for the purpose of pension is restricted to the statutory wage ceiling notified under the Provident Fund Act, which currently is Rs 15000 pm. Effective from 1 September 2014, when the wage ceiling was enhanced to Rs 15000 pm from the erstwhile Rs 6500 pm, the notification also provided that in respect of new joinees, contributions to Pension Scheme is mandatory only where the employee has a “Pay” of less than Rs 15000 pm,” says Saraswathi Kasturirangan, Partner, Deloitte India.

At a very high level, the employee is entitled to a monthly pension on retirement computed based on the below formula:

Monthly Member’s pension = (Pensionable salary X Pensionable service) / 70

For the above purpose, pensionable salary has been restricted to the applicable wage ceiling since contributions are restricted to wage ceiling. The EPS is, therefore, a defined benefit scheme.

What is the difference between EPS and EPF?

Provident Fund, on the other hand, is a defined contribution scheme governed by the Employees Provident Fund Act 1952 (EPF) whereby the employer and employee contribution as discussed above is accumulated to an individual account along with applicable interest, and can be withdrawn as a lump sum upon retirement. Withdrawal other than on retirement is also permitted under specified circumstances.

What salaried people contribute and are entitled to

The provisions of PF and the EPS Act are mandatorily applicable where the Pay for the purposes of an employee does not exceed the wage ceiling at the point of initial membership. “Where the pay exceeds the wage ceiling, the employee has an option to become a member. Such employees who are members are entitled to both pension benefits as well as Provident Fund benefits as elaborated above,” informs Kasturirangan.

What the SC Judgement means for salaried people

The Pension scheme restricts the pay for the purpose of pension contribution to the wage ceiling. This means that the quantum of pension is limited as well. “Salaried employees may prefer to contribute a higher amount so that they are able to receive a higher pension. Basis the Supreme Court decision, if employees are permitted to contribute on higher pay, they may choose to divert their contribution made to the Provident Fund to pension fund and earn higher pensions, instead of having higher PF withdrawals,” says Kasturirangan.

Solanki further explains, “This ruling will benefit the employees who joined an organisation before September 2014 since post-2014 EPFO has capped the salary at Rs 15000 pm for the EPS benefit. After this case, it is expected that more employees will approach EPFO to increase their pension as per the amendment. Although EPFO has rejected such requests in the past stating that they should have approached it within six months of the said amendment, however, the Supreme Court in its ruling has said such restrictions cannot apply. As a result, employees will benefit with a massive rise in pension.”

However, in case this happens, EPFO is surely going to be burdened with a huge liability which it has to fulfill now. EPFO has already started thinking about barring exempted PF Trusts, i.e. privately-managed trusts, from the EPS benefit. So, we should expect more court cases in the future if EPFO goes against the SC ruling or a delay in the implementation of the ruling to other employees who are part of the exempt establishments.

  1. M
    madhava rao
    Dec 7, 2017 at 12:53 pm
    It is hightime the government should hike the pension amount of pvt sector employees. Those who are worked for more than 30 years in a pvt firm get only Rs 1500-2000 pension which is really deplorable. To keep the labour class happy after their retirement, requesting govt of india to take this issue seriously and do something good in the interest of the lakhs of retired unprivileged class.
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    1. H
      H.S.Krishna Murthy
      Dec 2, 2017 at 5:56 am
      In the past, the employees ( now EPF/ EPS pensioners) were given commuted portion of their pension in lump sum of 33 1/3 of their pension. It is not restored after 15 years . The commuted portion of pension in Central Govt / State Govt pensioners are automatically restored after completing 15 years . The restoration of commuted portion of EPF/EPS pension should also be done after completion of 15 years . Otherwise, it will be an injustice done to the EPF/EPS pensioners,because even now the pensioners are receiving only 66 2/3 of their pension which is very meager.
      Reply
      1. Balu Kochukunjhu
        Dec 1, 2017 at 12:17 pm
        It is fact that EPFO did not give publicity to the 1996 amendment which was very beneficial to the EPS members. Since there was no cutoff date (which was rightly accepted by Supreme Court) it is only reasonable for EPFO that employees who were members of the scheme prior to the amendment are allowed option facility at least for one time now. Exemption is granted with a condition to ensure equal or better benefits for employees. Therefore EPFO cannot deny benefits to members of exempted trusts. In any case, the employee is never at fault for his employer operating an exempted trust and hence EPFO's stand on exempted trusts are against natural justice. EPS contribution is made by the employer directly and is in no way connected with trusts. It is sad that EPFO is dragging pensioners to the courts at their old age.
        Reply
        1. S
          santosh kumar sahoo
          Nov 30, 2017 at 9:07 pm
          Now a days and based on inflation rate, the amount payable to retired employees of private sector, is very less and would not be able to maintain his old life. Hence, the same may kindly be amended considering the present economic scenario.
          Reply
          1. P
            Pratap Kumar Misra
            Nov 28, 2017 at 8:26 pm
            Can anybody provide the Hon'ble SC's recent judgement copy on the basis of which the judgement of the year 2016 is going to be implemented by the EPFO
            Reply
            1. l
              lata.rishi
              Nov 28, 2017 at 6:07 pm
              Trusts have been allowed by the PF department only so this needs to be applicable to the trusts also. Moreover, the trust has same rules as the PF office directly.
              Reply
              1. G
                Gopal Chatterjee
                Nov 28, 2017 at 1:28 pm
                What happens to the employees who have retired many years ago. Unless Central Government interferes, nothing will be done to such employees. Government has to find out a mid path.
                Reply
                1. Swapan Nath
                  Nov 26, 2017 at 5:18 pm
                  EPF PENSION ONLY 750/-PER MONTH,WHICHOWDHURY IS GETTING FROM 14YRS. IS IT TO MUCH THEN OTHER PENSIONER?PL.SEE ABOVE THE MATTER,AS SOON AS POSSIBLE OTHERWISE WE CAN NOT RUN TO OUR LIFE TIME. SWAPAN NATH, RUPNARAYANPUR, WEST-BENGAL, 26.11.17
                  Reply
                  1. Swapan Nath
                    Nov 26, 2017 at 5:05 pm
                    ইপিএফ পেনসন মাত্র 750/-করে 18 বছর ধরে পাচ্ছি।আর সরকারি পেনসনেরা কেউ কেউ 30000 /-বা তার উপরে।সত্যি ভাবতে অবাক লাগে, এই 55লাখ ইপিএফ পেনসনাদের দিকে সরকারের কোন দৃষ্টি ও চিন্তা ভাবনা নেই ।আজ তারা অবহেলিত ও অশহায় ।কিভাবে এই দূরঅবস্হা থেকে বেড়িয়ে আসবে তারা আজ অসহায়।Swapan Nath,Rupnarayanpur, West-Bengal,26.11.17
                    Reply
                    1. J
                      Jayakumaran
                      Nov 26, 2017 at 3:51 pm
                      Pay Commission-linked and inflation-adjusted Pension is 'not' a charity for Govt. retirees whereas SC dictated fixed pension (50 of Basic pay and DA drawn last before retirement) to PSU and Private sector employees is viewed as 'charity' and 'not viable' ! What a wonderful policy of the Welfare Govt !
                      Reply
                      1. B
                        Bijan Kumar Mitra
                        Nov 26, 2017 at 10:22 am
                        how can an private sector employee will get benefit of the new apex court ruling.is it mandatory to deposit some amount and then get the hike in monthly pension. or it will come automatically to pension holders.s bank account. I am getting monthly pension of 1500 per month,Will it increase by 13 times automatically?
                        Reply
                        1. D
                          DR M Natarajan
                          Nov 26, 2017 at 9:53 am
                          Govt, EPFO should apply recent ruling of SC thatemployees can contribute more aboutc12 of Basic plus DA to get more pensioner half of their final basic plus DA, as happened to Praveen kohli of Hariyana tourist Sept. Pension as social security should be applicable to all irrespective of any sectors. Exempted signature should be abolished. No wonder retired employees of such exempted companies may approach SC to extend thepension policy
                          Reply
                          1. S
                            SUBRATA BAGCHI
                            Nov 25, 2017 at 10:31 am
                            I have retired on 31/01/2017 from SAIL - PSU. SAIL has it'seems own P. F Trustee Board. No Pension Scheme. Accumulated amount of Employee's contribution and the same amount of Employer's contribution is paid after retirement. My pension from EPFO is Rs 2572/- only. Shall I be bene ed if the verdict of Supreme Court is made effective by EPFO. YOUR EXPERTISE COMMENTS /REPLY IS SOLICITED BY MY E-MAIL
                            Reply
                            1. A
                              ASHOK APSINGIKAR
                              Nov 25, 2017 at 4:01 am
                              ALL along the at ude of EPFO has been anti EMPLOYEES. It is sitting on large amounts of unclaimed and unutilised money and blatantly cites fund shortage as the reason .It implements anything only after years of litigation followed by decisions from the supreme court.
                              Reply
                              1. Y
                                Y P rao
                                Nov 24, 2017 at 10:03 pm
                                I got appointed on 3 years contract at my age of 69. EPFO mistakenly accounted Rs.7500 in pension contribution. I am requesting to deposit in PF account and EPFO is not depositing. Please help me to get back the amount to be deposited in PF account.
                                Reply
                                1. A
                                  A K SRIVASTAVA
                                  Nov 24, 2017 at 5:30 pm
                                  EPF Pension-1995 should be revised .
                                  Reply
                                  1. J
                                    Jyoti Sharma
                                    Nov 24, 2017 at 5:22 pm
                                    Furthermore, they govt. employees don't have to apply for the higher pension and whatever pension amount, they are en le they get automatically and why in the case of private sector employee have to apply for a higher pension amount, why we should not get pension automatically after the retirement. So many forms we have to fill up to get pension and pay bribe for the start of pension. After the retirement from the service, why EPFO office should start the disbursing the pension. If private sector retires from the job, the EPFO Office should start the pension automatically. Why we should beg for the pension. The private sector employees unclaimed PF amount lies with EPFO Office to the tune of Rs.40,00,00000 crores which PF office also speaks and then what is the hassle in making higher pension payments against Supreme Court's ruling. Here, we all private sector retired people request Modiji to look into this irregularity and bless the people of the country. Jyoti Sharma
                                    Reply
                                    1. J
                                      Jyoti Sharma
                                      Nov 24, 2017 at 4:52 pm
                                      EPFO Office is advising the private sector retiring people to approach for higher pension within six months of Supreme Court Ruling, do EPFO office also approaches their office to get higher pension amount. The EPFO Office and other Govt. office do not advise their retired employees to approach any department for the pension. Similarly, same procedure should be applicable for private sector employees also and follow the Supreme ruling for the implementation of pension. EPFO office should not has any bias on higher pension issue.
                                      Reply
                                      1. R Vaidyanadhan
                                        Nov 24, 2017 at 4:03 pm
                                        The PF once claimed to have over 27,000 crores unclaimed money. How is enjoying its benefits? The revision of pension would do nor harm to the authorities.
                                        Reply
                                        1. r
                                          ramachandra.r
                                          Nov 24, 2017 at 2:05 pm
                                          Yes , this differentiation should be abolished, PF Pension to be revised irrespective of ceiling.
                                          Reply
                                          1. V
                                            vs
                                            Nov 24, 2017 at 8:43 pm
                                            your contribution is capped at 15000, your pension will be 7500. Better for future generations to contribute full ry
                                            Reply
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                                            manjushamuley
                                            Nov 24, 2017 at 12:46 pm
                                            Hello, Does it mean that employees who joined will benefit the EPS without cap of 15000 ry. Further is there any changes to Minimum 12 contribution in this context.
                                            Reply
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