In a move that could have implications for employees and firms, the Employees Provident Fund Organisation (EPFO) has decided to not allow employers contribute higher than the mandatory amount towards its pension scheme in fresh cases. This amounts to capping the employers’ contribution to employees’ pension at Rs 541 per month.
?…contribution to EPS-95 on higher wages would not be allowed and shall be limited to wage ceiling (Rs 6,500),” an EPFO communique to the field staff said. At present, the EPFO rules mandates employees to contribute 12% of their basic salary towards Employes Provident Fund (EPF) while the employer deposits a matching share in EPF, EPS and EDLI in the ratio of 8.33% of the salary in EPS, 0.5% in EDLI and the remaining 3.17% in EPF.
Though the monthly contribution towards EPS works out to Rs 541.45 per month ? 8.33% of the statutory wage limit of Rs 6,500 pm ? employers can contribute more on EPS on higher wages after putting in a joint request as per a rule laid down in Para 26(6) of the EPF Scheme.
The new rule prohibits that extra contribution out of higher wages.
While the EPFO and government stand to gain as its pension liability will be curtailed to a great extent, the change in the rule will constrict employees’ pension income after retirement, experts said.
The 12% mandatory contribution by employers will however remain unchanged. This means a higher contribution to EPF by employers.
“The impact of this change in rule on employees is that the pension income will be restricted after retirement but the EPF contribution will go up,” said S Chatterjee, a former central provident fund commissioner.
“It has been decided that henceforth and until further orders, no permission will be accorded for contribution on higher wages under EPS,” EPFO said in the circular.
KPMG director Vineet Agarwal said the financial impact on companies won’t be much as most corporates were restricting pension contribution to Rs 541 and contributing more towards the EPF. “However, people who wanted to get a higher pension will be impacted,” he said.
PFRDA?s assured return plan to cover long-term savings
New Delhi, Nov 12: In a bid to ensure safety and prevent erosion of long-term savings, the Pension Fund Regulatory and Development Authority (PFRDA) will notify a minimum assured return scheme that will invest in only government securities, finance minister P Chidambaram said on Tuesday.
After a long wait of 10 years, the PFRDA Bill was passed by Parliament, paving way for faster coverage of the national pension system. “The provisions of the Act include choice of pension fund manager, availability of minimum assured return schemes and the option of investment only in government securities,? Chidambaram said.
FE bureau