SC upholds amended EPS, allowing higher annuities to be chosen

The Supreme Court Friday upheld the Employees’ Pension (Amendment) Scheme, 2014, but read down specific provisions regarding the current subscribers.

The Supreme Court, in a three-judge bench comprising Chief Justice of India UU Lalit and Justices Aniruddha Bose and Sudhanshu Dhulia, ruled that the amendments to the scheme would apply to employees of exempted establishments in the same way as they apply to employees of regular establishments. EPFO’s (Employees’ Provident Fund Organisation) list of exempted establishments contains approximately 1,300 companies.

As a result of Friday’s Supreme Court ruling, EPFO members who have utilised the EPS have an additional opportunity to contribute up to 8.33 per cent of their actual salary toward pension over the next four months – as opposed to 8.33 per cent of their pensionable salary, which is capped at Rs 15,000 per month.

The EPS amendment of August 22, 2014, had increased the pensionable salary cap to Rs 15,000 a month from Rs 6,500 a month and permitted only existing members (as of September 1, 2014) along with their employers to participate in the pension fund by contributing 8.33 per cent of their actual salaries (if they exceeded the cap). At the discretion of the Regional Provident Fund Commissioner, this extension may be extended by another six months. However, it excluded new members who earned more than? If you join the scheme after September 2014, you will be excluded from the system entirely.

A further amendment required such members (with salaries exceeding Rs 15,000 per month) to contribute an additional 1.16 per cent of their salary above Rs 15,000 per month to their pension fund.

As a result, existing members who did not exercise their option within the specified period or extended period were considered not to have selected a contribution over the pensionable salary cap, and the additional contributions already made to the pension fund would be transferred to the member’s Provident Fund account, along with interest.

According to sources, a negligible percentage of EPFO members, with salaries exceeding the Rs 15,000 a month pensionable salary cap, have opted to make contributions based on their actual salaries.


The option of a higher pension

The government argued that workers at all levels should have more liquidity, but trade unions resisted this argument. In its ruling, the Supreme Court has allowed workers to choose whether to increase their provident fund contributions or pension payouts.

EPFO appealed the judgements of the Kerala, Rajasthan, and Delhi High Courts, which had quashed the Employees’ Pension (Amendment) Scheme, 2014, before the Supreme Court.

In exercising its original powers under Article 142, the Supreme Court extended the deadline for opting for the new scheme by four months. The High Courts quashed the post-amendment plan due to uncertainty regarding its validity. All employees who did not exercise the option but are entitled to do so but were unable to do so due to the interpretation of the cut-off date should be given certain adjustments,” it stated.

According to the pre-amendment scheme, the pensionable salary was calculated as the average salary drawn during the 12 months preceding exit from membership in the Pension Fund. The amendments increased this to an average of 60 months before the member departed from the pension fund.

According to the Supreme Court, there is no flaw in altering the basis of calculating pensionable salaries. However, the court ruled that the amendment requiring members to contribute an additional 1.16 per cent of their salary exceeding Rs 15,000 a month violates the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

Since the (1952) Act does not contemplate any contribution required of an employee to remain in the scheme, the Central Government cannot require such a requirement under the scheme itself, the Supreme Court ruled. The court stated that even if the government desired such a requirement, it could only have achieved it by amending the law.

Nonetheless, we cannot ignore that the pension amount to be paid has been calculated based on the assumption that the corpus would include employees’ additional contributions of 1.16 per cent. We cannot mandate that the Central Government contribute to a pension scheme without a legislative provision. According to the Supreme Court, the administrators should readjust the contribution pattern within the statute’s scope, and one possible solution is to increase the employer’s contribution.”

According to the bench, it has suspended the application of this part of the judgment for six months for the legislature to consider the necessity of amending the relevant legislation.

Several experts have recommended that the government should not change the existing distribution of provident funds and pensions. In the previous regime, there was a higher realisation rate for pensions. According to the government, workers at all levels should have greater liquidity, which the trade unions oppose. It should be the workers who make the decision rather than the government. The government should provide more options to the worker – whether she should opt for a higher provident fund or old system of higher annuities – and it should not tamper with the existing distribution between PF and pension,” K R Shyam Sundar, labour economist and professor at XLRI, Xavier School of Management Jamshedpur, said.

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