Explained | A breakdown of the higher pension scheme

Which judgment provided for the new provision under the Employees’ Pension Scheme of 1995? Who are the prospective beneficiaries? Will there be additional liabilities for the employers? What are the documents that need to be uploaded in order to avail of the higher pension?

March 05, 2023 10:59 pm | Updated 11:01 pm IST

The story so far: The long wait of subscribers of the Employees’ Provident Fund Organisation (EPFO) and those who retired after September 1, 2014 to apply for higher PF pension under the Employees’ Pension Scheme (EPS) of 1995 came to an end on February 27 with the Organisation providing a web link on its members’ page. The prospective beneficiaries fall under two categories — those who retired after September 1, 2014, and those who were in service prior to the date and continue to be in service. The critical element is that in either of the cases, employers must have made PF contributions in excess of the mandatory ceiling of the pensionable salary. Till now, 8,897 persons have sent their applications through their employers. The last date for availing the option of higher pension is May 3, 2023.

Why is the EPFO doing this?

The present exercise of the EPFO has been necessitated by the judgment of the Supreme Court given on November 4, 2022 in the EPFO versus Sunil Kumar B case. The verdict, apart from upholding the 2014 amendment brought in by the Union government, had given an opportunity to all employees, as on September 1, 2014, who did not exercise the option under paragraph 11 (4) of the EPS Rules for higher pension but were entitled to do so but could not due to the interpretation on cut-off date by the authorities. It clearly stated that the time to exercise the option “shall stand extended by a further period of four months.” In the light of the Court’s directions, the EPFO issued a circular on February 20, laying down the broad contours of eligibility.

The 2014 amendment, which came into effect in September that year, raised the pensionable salary cap to ₹15,000 a month from ₹6,500 a month, and allowed employers to contribute 8.33% of the employees’ actual pay (even if it exceeds the cap) towards EPS. Between November 16, 1995 (the date of commencement of the Pension Scheme) and May 31, 2001, the salary cap was ₹5,000. Even though employers, in many instances, had been making PF contributions over and above the ceiling for their employees, only 8.33% of the pensionable salary cap had got transferred to the Pension Fund. Another important feature of the amendment is that unlike in the past when new employees covered under the Provident Fund (PF) compulsorily became members of the EPS, only those with the monthly wage of not exceeding ₹15,000 can now be members of the Pension Scheme.

The February circular was the second substantive circular on the subject of higher pension, as the PF body, on December 29, 2022, came out with one that was meant for those who retired before September 1, 2014 and after exercising the option for higher pension. In respect of this category of pensioners, the EPFO gave an online facility (which is no longer available since March 4) for the submission of documents to the effect that they had given, while in service, the option along with their employers and received the communication from the PF authorities regarding rejection of their applications. This was in line with the Court’s stipulation in the Sunil Kumar case that the directions of the Court’s judgment given in 2016 in the R.C. Gupta versus Regional PF Commissioner, EPFO, case be implemented in eight weeks. As many as 91,258 persons submitted their applications as on March 4. However, those who retired before September 1, 2014 without exercising the option under paragraph 11(3) of the EPS Rules would not be eligible to apply for higher pension, as this was what the Court had laid down in its latest verdict.

How will the pension be calculated?

The pensionable salary, which represents the average of the last 60 months of salary, will have to be multiplied by the number of contributory years, the sum of which is to be divided by 70, which indicates the average longevity for an Indian. For the purpose of pension, an employee, on attaining the age of 58 years, is deemed to have retired from service and consequently, exited the Pension Scheme, regardless of the retirement policy of the employer.

How many are expected to be benefitted under the latest initiative?

There is no exact estimate available officially in this regard. However, K.K. Jalan, who was Central PF Commissioner during 2013-2016, was reported to have given a conservative figure of around one lakh. According to the EPFO’s annual report for 2021-22, as on March 31, 2022, there were about 27.95 crore members of the Pension Fund, of whom pensioners were around 72.74 lakhs.

Will there be any financial impact?

In the event of the authorities clearing the applications for higher pension, the pensioners and the subscriber will have to remit to them the amount that represents the difference between the portion of PF contributions transferred earlier to the Pension Fund and what would have to be paid based on actual salary. In the case of the subscribers, a certain portion of the amount lying with their individual PF accounts may even get transferred to the Pension Fund, after their applications for higher pension get approved. As all the pensioners would have received their terminal benefits, they will be required to make their payment separately. In any case, the payment will include interest too, the rate of which will be indicated by the authorities later. Going by what is available on the portal, the entire payment will have to be made in a single tranche. However, in respect of both, the EPFO is yet to reveal its approach comprehensively on the payment procedure.

Employers will be required to bear the administrative charges, which are expected to be nominal.

What are the documents required?

The applicants will have to upload payslips and the communication of permission obtained under paragraph 26(6) of the EPF Scheme Rules to establish that their pay exceeded the salary cap of ₹5,000 a month (up to May 31, 2001) and ₹6,500 a month (up to August 31, 2014) and they were entitled to get the benefit of higher pension. Besides, they will have to furnish relevant pages of their passbooks/account slips as proof of PF balance. In cases where there is nil or insufficient balance in PF accounts, an undertaking has to be provided by such members regarding the payment along with interest through their employers.

What will be the impact on take home salary?

There will be no impact on the net salary. If the application for higher pension gets approved, the change will be in respect of the transfer of the employer’s contribution towards the PF account of the employee. Only 3.67 percentage point of the employer’s 12% contributions on the actual pay of the employee will go to the PF account and the remaining 8.33%-age point to the Pension Fund.

Are there sections of pensioners or EPFO subscribers who have been left out?

It looks like. M. Shanmugam, DMK’s Member of Parliament (Rajya Sabha) says that neither the February circular nor the web link has anything to refer to the plight of employees of establishments which had closed down despite having eligibility to apply for higher pension when such establishments were in operation. Likewise, on account of the impact of COVID-19, a number of organisations have restricted their PF contributions to the mandatory ceiling in the last two-three years, even though they had, till then, made the contributions over and above the ceiling.

Should one opt for a higher pension?

The answer to this question varies from person to person, depending upon each one’s case and economic capacity. Higher pension may provide a sense of economic security after retirement. But the amount that a pensioner gets during his/her lifetime will get halved on his/her death and paid to the spouse. However, the amount that is lying with an employee’s PF account will be paid totally to the employee’s spouse in the event of his/her death during service.

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