In 2016, the Supreme Court directed the Employees Provident Fund Organisation (EPFO) to pay higher pension to 12 employees, based on an amendment to pension norms made in 1996. Here is all you need to know about the issue.
How does pension contribution work?
Out of an employee’s salary structure, the Basic wages and dearness allowance are taken for calculation of contribution to the Provident Fund. The employer and employee contribute 12% each towards the Fund. Of the employer’s contribution, 8.33% goes to the pension Fund. The government contributes 1.66% for administrative charges. After attaining age of 58, employee is eligible to get pension on a monthly basis from the accumulated corpus.
How has the salary ceiling for calculating pension changed?
The salary ceiling in the year 1995 when the scheme was introduced was ₹3500. It was raised to ₹5000 in 1997. The ceiling was revised to ₹6,500 in 2001, and further to ₹15,000 in 2014. So taking the ceiling of ₹15,000, the pension contribution works out to ₹1,250 now (8.33% of ₹15000).
Why the confusion now?
The EPFO had fixed the salary ceiling for calculation of pension at various points in time. However, in 1996, it passed an amendment which gave an option for the employer and the employee to contribute the full salary to pension. For example, if the basic wage and DA came to ₹20,000, the statutory ceiling to be taken for pension calculation was ₹5,000 at the time. The 1996 amendment provided an option for contributing 8.33% of the full salary of ₹20,000 towards pension.
Why is this a legal issue?
A majority of employees remained unaware about the amendment for almost 10 years post the amendment. When they did approach the EPFO based on the 1996 amendment, the institution dismissed their claims saying the cut-off day to opt for the higher pension was one month from the date of the amendment.
Some employees filed writ petitions in High Courts which ruled in their favour. The EPFO moved the Supreme Court against the order. In 2016, the SC too ruled in favour of employees and said there was no cut-off day for the 1996 amendment.
If you are still employed, could you expect a higher pension?
For those in service, the benefit of getting higher pension won’t be available. For, the EPFO again amended the pension contribution norm in September 2014. That amendment fixed the salary cap of ₹15,000 for pension contribution and did away with the practice of voluntary contribution, according to Salil Sankar, Regional PF Commissioner, Chennai, EPFO.
He also pointed out that the amendment provided for employees to opt for continuing the pension contribution above the ceiling along with the 1.66% contributed by the government. However, the time frame for that was only six months which is extensible by another six months.
So employees who did not opt for higher pension in that time frame are not eligible as per circulars issued by the EPFO in this regard. Employees who retired from service prior to the September 2014 amendment are eligible for higher pension provided they pay all the arrears in contribution along with interest.
Employees from organisations whose PF is managed by trusts are also not eligible as per EPFO, but that is now being challenged in court.