EPFO subscribers can opt for higher pension now; can ask for 8.33% deduction from total PF contribution


Subscribers of the Employees’ Provident Fund, who had not opted for higher pension under an earlier window, have been provided another option now. In compliance with the Supreme Court’s November 4, 2022, order, the Employees’ Provident Fund Organisation (EPFO) Monday issued instructions to all its regional and zonal offices on the manner in which employees should apply for higher pensions.

In a nutshell, the EPFO has now allowed subscribers to go beyond the pensionable salary capped at Rs 15,000 a month on which employers deduct a sum equal to 8.33 per cent of the ‘actual basic salary’ towards pension under the Employee Pension Scheme (EPS).

Details regarding method of deposit, computation of pension will be detailed in subsequent circulars, the EPFO said.

What this essentially means is that an employee and an employer can sign up together, requesting the EPFO to deduct 8.33 per cent of the higher monthly basic salary, thus ensuring larger accumulation towards pension over their work life.

With this new circular, the EPFO has covered the pending category of employees who continue to be in service on or after September 1, 2014.

“This will require reallocation of corpus from the Employees’ Provident Fund to Employees’ Pension Scheme from the date of joining membership under these schemes. Applications for higher pension needs to be submitted with the EPFO,” said Puneet Gupta, Partner, People Advisory Services, EY-India.

The EPS, which is administered by the EPFO, provides employees with pension after the age of 58. Both the employee and the employer contribute 12 per cent of the employee’s basic salary and dearness allowance to the EPF. The employee’s entire part goes to EPF, while the 12 per cent contribution made by the employer is split as 3.67 per cent contribution to EPF and 8.33 per cent contribution to EPS. Apart from this, the Government of India contributes 1.16 per cent as well for an employee’s pension. Employees do not contribute from their share of PF towards the pension scheme.

More clarity is required on the details regarding pension contribution for employees who continue to be in service on or before September 1, 2014, but did not exercise the option for the pension contribution to be linked to higher basic salary, experts said. It is likely that the option to choose for higher pension by such employees would be prospectively implemented, a person close to the development said.

In a February 20 circular, the EPFO had instructed its field officers to allow option for higher contribution by: one, the employees and employers who had contributed on salary exceeding the wage ceiling of Rs 5,000 or 6,500; two, did not exercise joint option (by employer and employee) while being members of Employees’ Pension Scheme (EPS 95); and three, were members prior to September 1, 2014 and continued to be a member on or after that date.

Monday’s circular stated that an online facility will be provided for employees who continued to be a subscriber of EPS on or before September 1, 2014, details of which will be informed shortly. “Once received, the Regional PF Commissioner shall put up adequate notice on the notice board and banners for wider public information,” the circular said.

For employees who had already contributed on higher wage but not exercised the option formally will now be required to submit an application at the regional office of EPFO. In case of the amount requiring adjustment from provident Fund to pension fund, and any re-deposit to the fund, explicit consent of the employee will be given in the joint option form, the circular said.

In case of transfer of funds from exempted provident fund trust to pension fund of EPFO, an undertaking of the trustee shall be submitted. “In case of employees of unexempted establishments, refund of requisite employer’s share of contribution, the same shall be deposited with interest at the rate declared under Para 60 of EPF Scheme. 1952, till the date of actual refund,” it said.

Last month, EPFO had issued instructions for re-examination of cases of employees who drew higher pension based on actual wage and retired prior to September 2014 but had not opted for pension linked to higher wage with the retirement fund body.

That circular had specified that “in order to stop over payment, if any, in respect of employees who had retired prior to 1st September 2014 without exercising any option under Para 11(3) or the pre-amended scheme, and have been granted pension on higher wages, their cases need to be re-examined to ensure that they are not given higher pension from the month of January 2023 onwards”.

“Pension in such cases may be immediately restored to pension on wages up to the ceiling of Rs 5,000 or Rs 6,500,” it said. The circular has raised concerns about lower pension benefits to EPF subscribers who had earlier been getting higher pension payout based on higher actual wage than basic wage.

Before that, a circular was issued in December detailing directions for employees who had contributed higher pension on actual wages but their request was denied by the provident fund offices. It said members who had contributed for pension on salary exceeding wage cap of Rs 5,000 or Rs 6,500 and exercised joint option along with employers for such contribution and their option was declined by PF authorities can now apply online to validate their option for a higher pension payout.

On November 4, the SC had upheld the Employees’ Pension (Amendment) Scheme, 2014, allowing another opportunity to EPF members who have availed of the EPS, to opt for higher annuity over the next four months. Employees who were existing EPS members as on September 1, 2014 were given another chance to contribute up to 8.33 per cent of their ‘actual’ salaries — as against 8.33 per cent of the pensionable salary capped at Rs 15,000 every month — towards pension.

Exercising its power under Article 142, the SC had extended the time to opt for the new scheme by four months. “There was uncertainty regarding the validity of the post amendment scheme, which was quashed by the High Courts. Thus, all employees who did not exercise the option but are entitled to do so, but could not due to interpretation of the cut-off date, ought to be given certain adjustments,” the SC had then said.

Under the pre-amendment scheme, the pensionable salary was computed as the average of the salary drawn during the 12 months prior to exit from membership of the Pension Fund. The amendments raised this to an average of 60 months prior to exit from the membership of the Pension Fund.

The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 originally did not provide for any pension scheme. In 1995, through an amendment, a scheme was formulated for employees’ pension, wherein the pension fund was to comprise a deposit of 8.33 per cent of the employers’ contribution to be made towards the provident fund corpus. At that time, the maximum pensionable salary was Rs 5,000 per month, which was later raised to Rs 6,500.

KE Raghunathan, Member and representative of employers, Central Board of Trustees of EPFO, “It was a complex situation where SC judgement, financial burden and need for a simplified procedure for EPF members had to be kept in mind. In this situation, Government of India and the EPFO have taken note of concerns of people and have laid out a crystal-clear way forward fulfilling the (SC) judgement and needs of the members. It’s a very appreciable move. Labour Minister has ensured happy ending for all concerned.”

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