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Supreme Court Upholds Employees’ Pension (Amendment) Scheme 2014

  • Category
    Polity & Governance
  • Published
    11th Nov, 2022

Context

In a significant ruling, the Supreme Court upheld the Employees’ Pension (Amendment) Scheme, 2014, allowing another 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.

Judgment in a nutshell

  • Employees who were existing EPS members (as on September 1, 2014) can contribute up to 8.33 per cent of their ‘actual’ salaries — as against 8.33 per cent of the pensionable salary capped at Rs.15,000 a month — towards pension.
  • The court, however, read down certain provisions concerning the current subscribers to the scheme.
    • The amendment which required members to contribute an additional 1.16 per cent of their salary exceeding Rs.15,000 a month as ultra vires (beyond the powers) of the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
  • The amendments to the scheme shall apply to employees of exempted establishments as they do for the employees of regular establishments.

There are about 1,300 companies in the list of the EPFO’s exempted establishments.

  • Extended time: The ruling gives EPFO members (who have availed of the EPS) another opportunity over the next four months to opt.

What was the Employees’ Pension Scheme (EPS), 1995?

  • The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 originally did not provide for any pension scheme.
  • 1995 Amendment: In 1995, through an amendment, a scheme was formulated for employees’ pension, wherein the pension fund was to comprise a deposit of 8.33 per cent of the employers’ contribution to be made towards provident fund corpus.
  • Maximum pensionable salary: Rs 5,000 per month which was later raised to Rs 6,500.

Understanding the Pension Maths:

  • The Employees’ Pension Scheme aims to provide employees with pension after the age of 58.
  • Contribution: Both the employee and the employer contribute 12 per cent of the employee’s basic salary and dearness allowance to the EPF.
  • Diversion of employer contribution: The employee’s entire part goes to EPF, while the 12 per cent contribution made by the employer is split as
    • 3.67 per cent contribution to EPF
    • 8.33 per cent contribution to EPS
  • Government’s contribution: Apart from this, the Government of India contributes 1.16 per cent as well for an employee’s pension. Employees do not contribute to the pension scheme.

 

What changed with the 2014 Amendment?

  • The scheme was amended in 2014.
  • Raised salary cap: It raised the pensionable salary cap to Rs 15,000 a month from Rs 6,500 a month.
  • Allowed Employee contribution: It allowed members along with their employers to contribute 8.33 per cent on their actual salaries (if it exceeded the cap) towards the EPS.
    • It gave all EPS members, as on September 1, 2014, six months to opt for the amended scheme (extendable by another six months).
  • Additional contribution: 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 a month towards the pension fund.
  • Those who did not exercise the option within the stipulated period 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.

Employment Provident Fund Organisation (EPFO):

EPFO is one of the World's largest Social Security Organisations in terms of clientele and the volume of financial transactions undertaken.

At present it maintains 24.77 crore accounts (Annual Report 2019-20) pertaining to its members. The central board of trustees which administers the EPFO runs three schemes - EPF Scheme 1952, Pension Scheme 1995 (EPS) and Insurance Scheme 1976 (EDLI).   

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