EPFO news: 1.7 mn employees under EPS 95 opt for higher EPS contribution

The Employees' Provident Fund Organisation (EPFO) has seen an increase in the number of members opting for higher pensions under the Employees’ Pension Scheme (EPS-95) since the landmark ruling by the Supreme Court in November 2022. This ruling has provided relief to eligible employees by allowing them to contribute to the scheme based on their actual basic salaries, rather than the previous fixed threshold of Rs 15,000 per month.

The EPS-95 was implemented in 1995 with the aim of offering a social security net for employees in the organised sector. Initially, employers were required to contribute 8.33% of their employees' wages to EPS, with a maximum monthly wage of Rs 15,000. In a recent update, employees now have the option to contribute based on their actual basic pay, which has the potential to enhance their future pension benefits.

The Supreme Court's decision on November 4, 2022, allowed current employees to choose a higher pension within the framework of the Employees' Pension Scheme (EPS) of 1995. As per the directive from the Supreme Court, EPFO has introduced an online platform for individuals to submit joint options for selecting a higher pension plan. To date, Minister of State for Labour & Employment Shobha Karandlaje has confirmed that more than 1.7 million applications have been verified.

How EPS-95 works

The EPS-95 scheme functions as a combination of a Defined Contribution and Defined Benefit plan, designed to provide financial security for retired individuals. Contributions are organised in the following manner:

Employer Contribution: 8.33% of wages
Central Government Contribution: 1.16% of wages (capped at Rs15,000/month)

This scheme ensures that eligible employees receive a pension upon reaching 58 years of age, given that they have served for a minimum of 10 years.

Last month it was reported that the Labour ministry is considering to revamp Employees' Pension Scheme 1995 (EPS-95) by allowing more contribution by members for higher retirement benefit.  Presently, the entire contribution of members of the Employees' Provident Fund Organisation (EPFO), or 12 per cent of the basic salary, goes into the EPF account.

It is the employers' contribution, of which 8.33 per cent goes into EPS-95 while the remaining 3.67 per cent is credited into the EPF account.