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EPFO update: Supreme Court ruling to significantly push up pension of private sector employees

BusinessToday.In     April 3, 2019

Private sector employees will see their pension shoot up under Employees Pension Scheme (EPS), 1995, thanks to a Supreme Court ruling on. The ruling dismissed a special leave petition filed by Employees Provident Fund Organisation (EPFO) against a 2018 Kerala High Court order that had asked the retirement fund body to give pension to all retiring employees on the basis of their full salary, rather than capping the figure on which contribution is calculated at a maximum of Rs 15,000 per month, The Times of India reported.

All employees in the organised sector currently contribute 12% of their salary (basic salary+dearness allowance) to the EPF. The employer makes a matching contribution, of which 8.33% goes to the EPS, subject to a salary cap of Rs 15,000.

Back in March 1996, the EPS Act was amended to allow members to raise the EPS contribution to 8.33% of their full salary (basic + DA) - provided the employee and employer had no objection - thereby doing away with the cap on salary. This raised the pension amount exponentially.

But in 2014, the EPFO again amended the Employees' Pension Scheme to not only increase wage ceiling for coverage to the current cap but also introduce significant changes. To begin with, new employees having salary exceeding Rs 15,000 per month were not eligible to become members of the EPS.

Furthermore, while existing employees who were members of the EPS as on September 1, 2014, had an option to contribute on higher salary, they needed to place a joint request along with their respective employers by a specific deadline, EY said in an alert. Last but not the least, pensionable salary would be calculated as the average of the last five years' monthly salary, and not of 12 months as per earlier norms. This reduced the pension of many employees.

The apex court, in October 2016, ruled that the EPFO can't restrict the higher-pension option to those who exercised it before a "cut-off date". The court also allowed those who hadn't made higher contributions to the EPS on a monthly basis to exercise the option by making lump-sum deposits of the differential amount due (difference between EPS contribution they made while in service and the contribution they would have made had it been pegged to their full salary).

Thanks to this ruling, petitioners like Praveen Kohli, a retired general manager with Haryana Tourism Corporation, saw their pension jumping nearly 1,200.

But the EPFO had been dragging its feet on the implementation of the order, perhaps deterred by the sheer volume of demands raised. Then, last year, the Kerala High Court set aside the 2014 amendment calling it arbitrary and unsustainable, and reinstated the old system of calculating the pensionable salary as the average of the last one year's monthly salary. The Supreme Court agrees with this verdict.

"We find no merit in the [EPFO's] special leave petition. The same is, accordingly, dismissed,'' the bench comprising CJI Ranjan Gogoi, Justice Deepak Gupta and Justice Sanjiv Khanna ruled today.

By upholding the High Court judgement, the Supreme Court has brought much cheer to the salaried class. Employees who have begun working after September 1, 2014, will reportedly also be able to avail the benefit of pension on full salary.

According to the daily, an employee earning Rs 50,000 per month with 33 years of service will now be eligible for a pension of Rs 25,000 per month up from just Rs 5,180 previously. Similarly, an employee with 20 years under the belt with a monthly salary of Rs 1 lakh will bag a pension of Rs 28,571 per month instead of Rs 2,100.

Also read: EPFO payroll data shows job growth in January after four months of shrinking

Also read: EPFO payroll data reports 8.96 lakh new jobs in January, 76.48 lakh in last 17 months


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