Time to streamline the Provident Fund pension scheme

There needs to be adequate budgetary support to the EPFO so that questions over the sustainability of the enhanced pension scheme do not arise

Updated - January 17, 2023 07:56 am IST

Published - January 17, 2023 12:08 am IST

‘The main reason behind the reluctance to allow a higher pension is the apprehension over the sustainability of the pension fund and the issue of cross-subsidisation’

‘The main reason behind the reluctance to allow a higher pension is the apprehension over the sustainability of the pension fund and the issue of cross-subsidisation’ | Photo Credit: Getty Images

For around 70 lakh pensioners, the end to the agonising wait for higher pension under the Employees’ Pension Scheme (EPS), 1995, appears to be no where in sight even though it has been over two months since the Supreme Court of India reiterated, as a matter of principle, its approval of the idea of higher pension.

A circular issued in late December by the Employees’ Provident Fund Organisation (EPFO), the administering body for the EPS, has only aggravated the sense of pain pensioners experience. Though considered a sequel to the Court’s verdict where the EPFO was asked to implement the Court’s directions of October 2016 too, the circular covers only a segment of pensioners — that too subject to certain conditions.

It all began in early 2005 when a section of Himachal Pradesh Tourism Development Corporation staff, on the eve of their retirement, demanded higher pension. As their employer had made the 12% mandatory contributions on their actual pay, which exceeded the statutory ceiling, they would be entitled to the benefit of the deposit of 8.33% of their actual salary in the Pension Fund. But the EPFO was not impressed as the employees along with their employer did not exercise their option within the cut-off date. Eventually, the matter went to the Supreme Court.

In October 2016, the top court rejected the EPFO’s notion of a cutoff date and held that the cut-off date, as in the EPS rules, was meant to calculate the pensionable salary only. An estimate shows that 24,672 pensioners got the benefit of higher pension.

Meanwhile, effective from September 1, 2014, the Centre made certain changes to the EPS which dealt with limiting the scheme’s applicability to those earning a monthly pensionable salary up to ₹15,000; the new basis of determination for the pensionable salary and requirement of employees and employers to give a fresh option, within six months and extendable by another six months, on contributions that exceeded the statutory ceiling (now ₹15,000) After three High Courts quashed the amendments, the matter went to the Supreme Court again.

While broadly upholding the modified scheme, the Court, in November 2022, reinforced its rejection of the theory of a cutoff date for giving the option, and asked the EPFO to grant four months to those who were members as on September 1, 2014, to exercise the option. Also, the retirement fund body was to execute the October 2016 verdict in eight weeks. Hence the December circular.

Imposing conditions

This circular has disturbed pensioners who had, after the November 2022 verdict, expected “manna from heaven”. But, the circular, citing the 2016 ruling, has sought to narrow the scope of coverage of beneficiaries with the imposition of three conditions: payment of contributions on higher or actual wages; exercise of joint option while in service, and refusal by the EPFO to allow higher pension.

A section of pensioners contends that as the authorities did not allow such persons, while in service, to furnish their option for about 12 years (beginning from December 2004), the question of exercising the option in the period does not arise — which is why they have been left out. Besides, retirees post-2014 — those who are 58 years after September 1, 2014 — are clueless about their plight. Another circular is likely to be issued by the EPFO to clear the air.

The main reason behind the reluctance of the PF authorities to allow a higher pension is the apprehension over the sustainability of the pension fund and the scenario of those receiving lower pension having to cross-subsidise pension payouts for those getting or likely to get a higher pension. This alongwith factors such as rising actuarial shortfall, lower rate of returns and increasing longevity of pensioners may lead to the situation of pension payouts outstripping receipts. This would, according to the EPFO, go against social security.

No clarity

But what the authorities should keep in mind is that much of the confusion among pensioners could have been avoided had they been proactive in sharing information or explaining the position to those concerned. For about two months after the November ruling, the EPFO was silent over the course of action. And, there is still no clarity even after the December circular.

On the policy front, the Government and the EPFO should increase the minimum monthly pension of ₹3,000 against the existing ₹1,000. The hike in pension would address, to a large extent, the grievances of pensioners who were in the lower wage bracket. Besides, the EPFO can give a one-time opportunity to all those in the higher wage group who retired since December 2004 without exercising the option. To make all these suggestions a reality, the Government should substantially increase its financial support. Also, the Code on Social Security, 2020, when it gets implemented, can have a scheme for those youngsters who have got jobs after September 2014 who have been left out of the EPS on account of their higher wages. All these measures would only establish that the Government and the EPFO are sincere about providing social security.


0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.