End logjam for EPFO pensioners

The announcement of the successful pilot run of the Centralised Pension Payments System (CPPS) under the Employees’ Pension Scheme (EPS), 1995, comes at a critical time when lakhs of Employees’ Provident Fund Organisation (EPFO) members are awaiting higher pension payments. The new system will ease pension disbursement, but concerns remain regarding pending applications and other long-standing issues related to pension eligibility and fund sustainability.

CPPS and Its Benefits for Pensioners

• Simplified Pension Distribution: The new CPPS will allow pensioners to collect their pension from any bank branch in India, without needing to open an account in a specified bank. Verification for pension commencement will also no longer be required.
• Relief for New Pensioners: With the system launching nationwide on January 1, 2025, the CPPS aims to streamline the pension disbursement process, benefiting pensioners who were previously burdened by cumbersome account and verification requirements.
• Pending Issues with Higher Pension Applications: While the CPPS is a positive step, the EPFO continues to delay processing pension applications for higher wages. As of August 2023, about 1.3 million applications were still pending, with only a few pension payment orders issued.

Key Issues in Higher Pension Processing

• Slow Progress and Backlog: Despite the Supreme Court’s approval of pension on higher wages (for those exceeding the wage ceiling), the processing of related applications has been slow. As of August 2023, only 8,400 pension orders had been approved, leaving a large number of pending applications.
• Challenges in Document Submission: Applicants face difficulties in providing old documents, such as pay slips from decades ago, which are often not available. Additionally, employers must transfer a portion of their savings to the EPFO to meet pension requirements, which complicates the process.
• Pro-Rata Calculation and Eligibility Issues: The EPFO’s pro-rata calculation method and stringent conditions for retirees before September 2014 have made it difficult for many to access higher pensions. Moreover, retirees must submit consent for transferring pension corpus contributions, adding to delays.

Financial Sustainability and Future Recommendations

• Fund Deficit and Sustainability Concerns: EPFO officials have cited an actuarial deficit of Rs 9,500 crore based on recent data, warning that this could affect the long-term sustainability of the pension fund and impact lower pension earners.
• Positive Fund Growth Despite Deficit: Despite the projected deficit, EPFO’s 2022-23 annual report shows no cash flow issues in recent years. Contributions from employers and the Centre have risen, increasing the pension corpus by Rs 2.5 lakh crore in three years.
• Need for Government Intervention: Experts recommend that the government set aside a one-time fund to address the deficit or increase the contribution rates to strengthen the pension fund. The EPFO and government should provide clarity on their plans to resolve the issue and expedite pension disbursement.

Practice Question

Q. Evaluate the challenges and potential solutions regarding the implementation of higher pensions under the Employees’ Pension Scheme, 1995, and discuss the role of the EPFO in ensuring the sustainability of the pension fund.