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  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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