Are employees contributing to private EPF trusts also eligible to apply for higher EPS pension? Usually, employees covered under EPF scheme deposit their PF money with the EPFO. However, some companies prefer to have their private, exempted EPF trust instead. Are the employees covered under exempted EPF trust also eligible for higher pension?
Puneet Gupta
Puneet Gupta is Partner, People Advisory Services, EY India.
The Supreme Court, in its judgement dated November 4, 2022, upheld the amendments made by the Ministry of Labour and Employment in August 2014 to the Employees' Pension Scheme (EPS), 1995. The amendment restricted the employees right to claim higher pension, entry into the EPS above a specified salary level and calculation of pension at the time of retirement. However, the Supreme Court has recognised that there was uncertainty on higher pension in the past and has given time till March 3, 2023 to eligible members to make joint application with the employer, to the Employees' Provident Fund Organisation (EPFO), to avail higher pension benefit.
To comply with the Supreme Court judgement, the EPFO has issued a circular on December 29, 2022. The circular give clarity to pensioners who have put in request for higher pension in previous years but were rejected by the EPFO.
How employee could opt for higher pension till August 31, 2014
Until August 2014, an employee could avail the option, with the consent of the employer, to allocate higher share of employer's contribution to the pension scheme. Such option was to be availed from the date salary exceeded the threshold limit (Rs 6,500 in August 2014). Where such option was opted, the pensionable salary for calculation of monthly pension at the time of retirement is also considered as salary on which contribution to pension scheme is made. This makes an employee eligible for higher pension post retirement.
The Supreme Court held that there can be no cut-off date for an employer and an employee to avail the option of making higher pension contribution. In case such an option is exercised by the employee, the EPFO can divert the funds from the Provident Fund Scheme to the pension scheme and provide higher pension to the employees.
What changed in EPS from September 1, 2014
Effective from September 1, 2014, an amendment was made to the pension scheme through which only existing members of the pension scheme as on September 1, 2014, who at the option of the employer and employee, had been contributing to the pension scheme on salary exceeding the prescribed ceiling, may on a fresh option to be exercised jointly by the employer and employee continue to contribute on salary exceeding Rs 15,000 per month. For such employees, pensionable salary will be based on the higher salary. However, such option could have been exercised by the members until August 31, 2015.
An additional condition was introduced through an amendment in August 2014. Such employee availing the option for higher pension contribution will have to contribute at the rate of 1.16% on salary exceeding Rs 15,000 as an additional contribution to the pension scheme from and out of the contributions payable by the employees for each month under the Employees' Provident Fund (EPF) Scheme.
It may be noted that to avail higher pension, additional contributions are allocated out of the provident fund scheme to the pension scheme and no additional payment is required by the employer or employee. Also, effective September 1, 2014, any new member of provident fund scheme, whose basic salary exceeds Rs 15,000 per month is not eligible for membership under the pension scheme. For such employee, employer's and employee's contribution is fully allocated to the EPF.
What Supreme Court ruling dated November 4, 2022 said
The Supreme Court held that the said classification of employees in the 2014 amendment meets the test of reasonable classification contemplated in Article 14 of the Constitution of India. It held that based on macro-level social disparities, the Court cannot require the government to operate pension scheme in a particular way.
The Supreme Court recognised that there was uncertainty as regards validity of amendments made to the pension scheme in August 2014, which were quashed by the various High Courts. To allow option to employees who did not exercise option for higher pension earlier but were eligible to do so, the Supreme Court extended the time limit to exercise the joint option by employer and employee by a further period of 4 months from the date the ruling was delivered, i.e., until March 3, 2023. Once such joint option is exercised, the transfer of funds from the provident fund corpus to the pension fund will be affected as per the terms of the scheme.
The Supreme Court agreed with the view of High Courts that the requirement in the amended scheme for employee's additional contribution to avail higher pension benefit to the extent of 1.16% of salary exceeding Rs 15,000 per month is illegal. However, the Supreme Court has asked the government to make necessary changes in the provident fund scheme/pension scheme. The requirement for additional employee's contribution will continue for 6 months till the government makes necessary legislative amendments.
As regards eligibility of employees covered under the Private Provident Fund Trusts operated by employers, the Supreme Court held that employees of such exempted establishments who operate Private Provident Fund Trusts cannot be deprived of the benefit of higher pension. Option to avail higher pension benefit will operate for employees of exempted establishments in the same manner as the employees of regular establishments.
What EPFO circular dated December 29, 2022 said
On December 29, 2022, the EPFO has issued guidelines for an employee, satisfying all the following conditions, to avail higher pension option online on the EPFO portal:
Condition 1: The employee has contributed towards the EPF scheme on a salary exceeding the ceiling limit (Rs 5,000/Rs 6,500) as the case maybe.
Condition 2: The employee had earlier made an application along with his/her employer availing higher pension benefit under provisions of the EPS Scheme as it stood prior to amendment in August 2014
Condition 3: Such exercise of option was declined by the EPFO.
Thus, this EPFO circular only applies to employees who have made joint application to the EPFO along with employers to avail higher pension benefit in the past.
Employees who were members of the EPS as on September 1, 2014 and did not opt for higher pension earlier should also be eligible for higher pension benefit as per Para 44(iv) of the Supreme Court ruling dated November 4, 2022. As per the ruling, such employees should opt for higher pension by March 3, 2023 (4 months from the ruling).
However, the EPFO circular dated December 29, 2022 is silent on the procedure to be followed by such employees to avail of the higher pension benefit. It may be useful if the EPFO issues a circular providing clarity on its position for employees who are current members of the pension scheme and have not made joint application for higher pension in the past.
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
