In a ruling issued by the Supreme Court, employees’ pension scheme members of Employees’ Provident Fund Organization (EPFO) have been allowed to contribute more towards pensions, provided that they meet certain conditions. There was confusion for several years arising from judgments passed by various high courts quashing EPFO’s August 22, 2014 notification.
A recent Supreme Court judgment dated November 4, 2022, affirms the following:
If an employee joins the Employees’ Provident Fund (EPF) scheme on or after September 1, 2014, and their monthly basic salary exceeds INR 15,000 per month, this will bar them from joining the Employees’ Pension Scheme (EPS).
In 2014, the EPFO notified that a maximum pensionable salary of Rs 15,000 per month could be used in calculating pensions. Accordingly, even if the basic salary is higher than Rs 15,000, the employer’s pension contribution will remain at Rs 15,000.
EPS members who were making higher contributions to the EPS in September 2014, i.e., employees whose actual salaries exceeded Rs 15,000 per month, have been granted one-time relief. In order to continue contributing to the EPFO at a higher rate, these employees must give a joint declaration with their employer. Within four months of the judgment (November 4, 2022), this declaration must be submitted by March 3, 2023. Pensions for employees who declare this will be calculated based on their higher salary (rather than the capped monthly salary of Rs 15,000).
Employees were required to contribute 1.16% more if their salary exceeded Rs 15,000 per month under one of the amendments struck down by the Supreme Court. EPS was framed under Section 6A of the EPF Act, which did not give the authority to require additional contributions from members. The EPFO has kept this portion of the pension fund in abeyance for 6 months so that it can figure out how to increase contributions without depleting the fund.
For an individual to qualify for EPS benefits, they must meet the following requirements:
- The EPFO should have him as a member
- The number of years he should have served should have been 10
- He must have attained the age of 58
- In addition, he can withdraw his EPS at a reduced rate once he turns 50
- The pension can also be deferred for two years (up to the age of 60), after which he will be paid an additional 4% in retirement.
Experts’ opinions on the SC judgment
IndusLaw partner Sowmya Kumar acknowledges that the Supreme Court has clarified certain fundamental aspects of EPS’s functioning but also highlighted further nitty-gritty that needs to be ironed out. The EPFO should issue detailed operational guidelines and FAQs based on this judgment, particularly on how the addition will affect exempted establishments and how it can be applied. One thing seems clear, employees who were members of the EPS on September 1, 2014, and whose contributions were higher will qualify for a more generous pension.”
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