EPFO news: Higher EPS pension linked to actual salary restored for eligible employees
The Employees' Provident Fund Organisation (EPFO) has clarified rules around the higher Employees' Pension Scheme (EPS) option, reinstating the ability for certain employees to link pension contributions to their actual basic salary and dearness allowance.
- Feb 23, 2026,
- Updated Feb 23, 2026 9:05 AM IST
The Employees' Provident Fund Organisation (EPFO) has issued a clarification restoring the earlier provision that allowed certain employees to contribute to their pension based on their actual basic salary and dearness allowance (DA). This step reverses the restriction imposed by the 2014 amendment that capped pensionable salary at Rs 15,000, impacting how pensions are calculated for long-term EPFO subscribers. The change primarily benefits those who had opted for higher EPS contributions before the cut-off date, with the move expected to provide relief to a defined group rather than the broader subscriber base.
The recent government clarification applies only to employees who exercised the higher pension option prior to the September 1, 2014, amendment. As such, it does not extend automatically to all EPFO members. The clarification is not a new benefit but a reinstatement of an earlier right. As officials told ToI: "this is not a new benefit but a restoration of the previous provision."
According to the Times of India report, the restoration centres on the ability to contribute towards pension based on the actual basic pay and DA rather than the capped wage ceiling. "As per the ToI report, the recent clarification from the government restores the earlier option of contributing towards pension based on the actual basic salary and DA."
The decision means only employees who made the higher contribution choice before the 2014 amendment are eligible to benefit. The option also relies on employer consent, as employees cannot individually opt in without approval from their employer. Thus, the scope is largely restricted to those in public sector undertakings (PSUs) or organisations that had previously agreed to higher contributions.
Prior to 2014, the higher EPS pension option was often selected by PSU employees, enabling some to receive pensions close to half their last-drawn basic salary. After the September 2014 change, the pensionable salary cap at Rs 15,000 limited new participants and led to confusion around the status of employees who had previously opted for the higher pension. The restoration addresses this uncertainty for a select group, but does not alter the broader framework for most EPFO subscribers.
The current limit, implemented in 2014, fixes the minimum EPS monthly pension at Rs 1,000 and sets the maximum pensionable salary at Rs 15,000 (including basic salary and DA). As a result, the highest possible EPS monthly pension was capped at Rs 7,500. Employees joining after 2014 or whose salaries exceed the cap cannot base their pension contributions on actual pay, limiting their potential pension benefits.
EPFO rules require both employer and employee to contribute a maximum of 12% of basic salary and DA to the Provident Fund, with 8.33% of the employer's share earmarked for the EPS. The facility is mandatory for employees earning up to Rs 15,000, but remains optional for the restored group who had previously opted in. For most private sector workers restricted by the current cap, pension payouts remain modest.
The EPFO's clarification is seen as a step towards resolving confusion since the 2014 cap was introduced. "EPFO’s decision follows long-standing confusion that existed ever since the provident fund body capped pensionable salary in September 2014, claims the report." While the reinstatement offers clarity and benefits to a limited group, the majority of employees continue to be governed by the post-2014 rules and salary caps when calculating their pensions.
The Employees' Provident Fund Organisation (EPFO) has issued a clarification restoring the earlier provision that allowed certain employees to contribute to their pension based on their actual basic salary and dearness allowance (DA). This step reverses the restriction imposed by the 2014 amendment that capped pensionable salary at Rs 15,000, impacting how pensions are calculated for long-term EPFO subscribers. The change primarily benefits those who had opted for higher EPS contributions before the cut-off date, with the move expected to provide relief to a defined group rather than the broader subscriber base.
The recent government clarification applies only to employees who exercised the higher pension option prior to the September 1, 2014, amendment. As such, it does not extend automatically to all EPFO members. The clarification is not a new benefit but a reinstatement of an earlier right. As officials told ToI: "this is not a new benefit but a restoration of the previous provision."
According to the Times of India report, the restoration centres on the ability to contribute towards pension based on the actual basic pay and DA rather than the capped wage ceiling. "As per the ToI report, the recent clarification from the government restores the earlier option of contributing towards pension based on the actual basic salary and DA."
The decision means only employees who made the higher contribution choice before the 2014 amendment are eligible to benefit. The option also relies on employer consent, as employees cannot individually opt in without approval from their employer. Thus, the scope is largely restricted to those in public sector undertakings (PSUs) or organisations that had previously agreed to higher contributions.
Prior to 2014, the higher EPS pension option was often selected by PSU employees, enabling some to receive pensions close to half their last-drawn basic salary. After the September 2014 change, the pensionable salary cap at Rs 15,000 limited new participants and led to confusion around the status of employees who had previously opted for the higher pension. The restoration addresses this uncertainty for a select group, but does not alter the broader framework for most EPFO subscribers.
The current limit, implemented in 2014, fixes the minimum EPS monthly pension at Rs 1,000 and sets the maximum pensionable salary at Rs 15,000 (including basic salary and DA). As a result, the highest possible EPS monthly pension was capped at Rs 7,500. Employees joining after 2014 or whose salaries exceed the cap cannot base their pension contributions on actual pay, limiting their potential pension benefits.
EPFO rules require both employer and employee to contribute a maximum of 12% of basic salary and DA to the Provident Fund, with 8.33% of the employer's share earmarked for the EPS. The facility is mandatory for employees earning up to Rs 15,000, but remains optional for the restored group who had previously opted in. For most private sector workers restricted by the current cap, pension payouts remain modest.
The EPFO's clarification is seen as a step towards resolving confusion since the 2014 cap was introduced. "EPFO’s decision follows long-standing confusion that existed ever since the provident fund body capped pensionable salary in September 2014, claims the report." While the reinstatement offers clarity and benefits to a limited group, the majority of employees continue to be governed by the post-2014 rules and salary caps when calculating their pensions.