News Highlights:
Recently, the Supreme Court upheld the Employees’ Pension (Amendment) Scheme, 2014, allowing an opportunity to members of the Employees Provident Fund Organisation (EPFO), who have availed of the EPS to opt for higher annuity over the next four months.
Employees’ Pension Scheme:
- About:
- EPF Pension, technically known as Employees’ Pension Scheme (EPS), is a social security scheme provided by the Employees’ Provident Fund Organisation (EPFO).
- The scheme was first launched in 1995.
- The scheme, provided by EPFO, makes provisions for pensions for employees in the organised sector after retirement at the age of 58.
- Employees who are members of EPF automatically become members of EPS.
- Wage share:
- Both employer and employee contribute 12% of the employee’s monthly salary (basic wages plus dearness allowance) to the Employees’ Provident Fund (EPF) scheme.
- EPF scheme is mandatory for employees who draw a basic wage of Rs. 15,000 per month.
- Of the employer’s share of 12 %, 8.33 % is diverted towards the EPS.
- Central Govt. also contributes 1.16% of the employee’s monthly salary.
What changed with the 2014 Amendment?
- Amendments:
- The scheme was amended in 2014.
- It raised the pensionable salary cap to Rs 15,000 monthly from Rs 6,500.
- It allowed members and their employers to contribute 8.33 per cent on their actual salaries (if it exceeded the cap) towards the EPS.
- The amendment, however, required such members (with actual salaries over Rs 15,000 a month) to contribute an additional 1.16 per cent of their salary exceeding Rs 15,000 towards the pension fund.
- Those who did not exercise the option within the stipulated or extended period were deemed to have not opted for contribution over the pensionable salary cap. With this, the extra contributions already made to the pension fund were to be diverted to the Provident Fund account of the member, along with interest.
- Implications:
- People who have subscribed to EPF can get a pension on their full salary instead of the Rs. 15000 caps.
- Employees and employers who have contributed to the EPF without approval from Assistant Provident Commissioner may not benefit from judgment.
- The amendment done in 2014 may remain applicable to the companies which manage their EPF corpus through trusts.
SC’s Judgement:
- Opportunity for EPFO Members:
- Under Article 142, the Supreme Court ruling gives EPFO members who have availed of the EPS another opportunity over the next four months to opt and contribute up to 8.33% of their actual salaries as against 8.33% of the pensionable salary capped at Rs 15,000 a month towards pension.
- Under the pre-amendment scheme, the pensionable salary was computed as the average of the salary drawn during the 12 months before exiting from membership of the Pension Fund. The amendments raised this to an average of 60 months before exiting from the membership of the Pension Fund.
- The court held the amendment requiring members to contribute an additional 1.16 % of their salary exceeding Rs 15,000 a month as ultra vires the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
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Content Source: The Hindu