EPFO may exclude new recruits earning from pension cover

Jul 24 2014, 13:06 IST
Comments 0
SummaryNew recruits starting with a basic salary of over Rs 15,000 per month may be denied pension...

New recruits starting with a basic salary of over Rs 15,000 per month may be denied pension cover by the Employees' Provident Fund Organisation (EPFO) even as they contribute to the provident fund.

While EPFO's corpus and subscriber base will rise significantly once the government raises the wage ceiling from R6,500 pm to R15,000 pm for mandatory coverage of provident fund, it will still come under pressure to pay a minimum pension of R1,000 per month from its Employee's Pension Scheme (EPS) that already runs a huge deficit.

To limit the losses, the rule change to guarantee a minimum pension will come with a host of riders.

In an internal circular, EPFO said: "The proposed amendments have a provision whereby only such new PF members shall become EPS (Employee's Pension Scheme) members whose pay at the time of joining will be less than or equal to R 15,000."

For those starting with a pay of more than R15,000 per month, the EPFO circular said "the entire employer and employee contribution shall remain in the provident fund (EPF) and no diversion to EPS shall be made". This means new employees getting more than R15,000 as basic salary will get back their accumulated PF amount after retirement but won't be entitled to any pension.

At present, PF contributions of both employees and employers are allocated to three funds -- EPF, EPS and Employees Deposit-linked Insurance scheme (EDLI). Employees contribute 12% of their basic salary towards EPF while employers contribute 3.67% towards EPF, 8.33% to EPS and 0.5% to EDLI. On its behalf, the government contributes at the rate of 1.16% towards EPS.

In case of employees already making PF contribution on a salary exceeding R6,500, the EPFO circular said the employees and

employer will have to "exercise a fresh option" to contribute on a salary exceeding R15,000. Here again, the employees will not get the benefit of government contribution of 1.16%.

Moreover, the the proposed amendment stipulates that pension amount will

be calculated on the basis

of average monthly salary for last five years of service instead of the earlier practice of one year.

Actuarial valuations show the deficit on EPS has snowballed to R61,608 crore in 2009 from just R43 crore in 2001. However, actuarial evaluation for 2011-12 indicates that the deficit may have come down to about R10,000 crore after factoring in data for 58% of members as against the earlier estimates based on just 5%.

The proposed

Single Page Format
Ads by Google

More from Personal Finance

Reader´s Comments
| Post a Comment
Please Wait while comments are loading...