Tension regarding higher pension

Vijay C Roy

THE wait of lakhs of EPFO subscribers for clarity on higher pension under the Employees’ Pension Scheme (EPS) of 1995 after a landmark Supreme Court ruling seems to be getting longer.

New deadline

The deadline has been extended till June 26. More than 12 lakh applications have been received.

How to apply

• The eligible EPF members can go to https://unifiedportal-mem.epfindia.gov.in
• There is an option for ‘Pension on higher salary’. Enter details. A one-time password will be sent to your Aadhaar-linked mobile number.

Gurdeep Singh’s case exemplifies the ambiguity that prevails. It was in November last year that the retired employee of the Punjab Ex-Servicemen Corporation came to know about the apex court verdict. Since January this year, he has visited the Employees Provident Fund Organisation (EPFO) office in Chandigarh several times. Each time, the officials say all the information is available online. “Even the staff are clueless. There is nobody who can make us understand the nitty-gritty of the scheme,” says Gurdeep Singh, who retired in 2020.

Supreme Court verdict

According to the November 4, 2022, judgment, there are two categories of employees who can apply for higher pension. The first is of employees who retired after September 1, 2014. The second is of those who were serving as on September 1, 2014, and are still in service. The basic requirement is that the employers must have made Provident Fund (PF) contributions in excess of the mandatory ceiling of the pensionable salary.

At the time of introduction of the EPS in 1995, the maximum pensionable salary was Rs 5,000 per month. This was subsequently raised to Rs 6,500 and then Rs 15,000 from September 1, 2014. The pension contribution currently is 8.33 per cent of Rs 15,000, that is Rs 1,250, unless the employee and the employer have opted to contribute at actual basic salary exceeding the pensionable salary.

The new procedure

Recently, the EPFO came up with a procedure for contribution towards higher pension. “It has been decided to draw 1.16 per cent additional contribution from within the overall 12 per cent ceiling of the employers’ contribution to the Provident Fund,” a Labour Ministry statement said.

At present, both the employees and employers contribute 12 per cent of the basic salary, dearness allowance and retaining allowance, if any, to the EPF. The employee’s entire contribution goes to the EPF, while the 12 per cent contribution by the employer is split as 3.67 per cent to the EPF and 8.33 per cent to the EPS. Currently, the Government of India pays 1.16 per cent of basic wages of up to Rs 15,000 (threshold basic wage) as subsidy for contributions towards the EPS.

Identifying subscribers

The eligible subscribers will be able to assess their dues, including the interest payable, towards the pension fund. The EPFO has directed its field offices to calculate dues for subscribers opting for higher pension. These will be calculated after the verification of wage details.

Calculation of dues

The dues have to be calculated month-wise. These will be based on the fact that 8.33 per cent of the employer’s share on higher pay from November 16, 1995, or from the date the pay exceeds the wage ceiling, and 1.16 per cent of the employer’s share on higher pay above Rs 15,000 per month will be calculated towards the increased pension contribution. The amount already deposited to the EPS account will be adjusted against it. The interest to be charged on dues shall be the interest earned by members on their PF contribution. The government has enhanced the employer’s contribution to the EPS account from 8.33 per cent to 9.49 on EPS contribution above Rs 15,000 per month for those eligible for higher pension.

Intimation to pensioners

As per the latest EPFO circular, once the total dues (missing contribution and accrued interest) are calculated, the field office will inform the pensioner/employee about the dues.

Three months for consent

The subscribers or pensioners opting for higher pension will get three months to give their consent for diverting additional contributions or dues under the EPS run by the EPFO.

Impact on subscribers

A subscriber is likely to get higher pension after retirement. As actual salaries have risen way beyond the pensionable salary cap of Rs 15,000, the higher pension would provide a better social security cover. The choice for higher pension would then involve transferring of funds from the PF or other sources to the pension fund.

The shortcomings

The answer to this question varies from person to person, depending on each one’s financial capacity. Higher pension may provide a sense of economic security after retirement. But the amount that a pensioner gets during his or her lifetime will be halved on death and paid to the spouse. However, the entire amount lying in the employee’s PF account will be paid to the employee’s nominee in the event of his/her death during service.

No clarity on pension amount

The EPFO has told its field offices that the method of computation will follow through a subsequent circular.

Points to ponder

Loss of compounding benefit: Since there will be transfer of funds from the EPF to the EPS scheme from the date of joining the scheme, the subscriber is likely to be deprived of the benefits of compounding.

No interest on EPS: The contribution to the EPS does not earn interest the way it does in the EPF. Also, the member is not going to get a lumpsum at retirement. You are paid pension.

Reduced pension to spouse: 50 per cent in case of death under EPS.