Background:
In 1995, through an amendment to the Employees' Provident Fund Act, 1952 ("EPF Act"), Section 6A of the EPF Act introduced a scheme named the Employees' Pension Scheme, 1995 ("EPS"), for governing the terms of employees' pension. As per the EPS, a part representing 8.33% of the Employees' Provident Fund ("EPF") contribution to be made by the employer as per the EPF Act is required to be remitted into the 'Employees' Pension Fund' formed in accordance with Section 6A of the EPF Act and the EPS.
Over the years, the pensionable salary was altered vide various amendments to the EPS. Prior to the 2014 Amendment (as defined below), the maximum pensionable salary was INR 5,000 per month, which was later increased to Rs 6,500. However, the EPFO gave 6 months for the employees to file a joint option form for higher pension contributions to the EPS ("Earlier Option"). Thereafter, through an amendment to the EPS which was effective from September 1, 2014 ("2014 Amendment"), the EPS contribution of 8.33% was capped at the maximum pensionable salary of INR 15,000 per month, even when the employee draws a higher salary. Thus, employers would make an EPS contribution of 8.33% on a maximum of INR 15,000 for the employees joining the EPF scheme after September 1, 2014, even when they draw a higher salary. However, the employees who were part of the EPS before September 1, 2014 could contribute 8.33% to EPS on the actual salary as against the cap of INR 15,000 per month, provided a new joint option was filed by the employer and employee with the EPF authorities within 6 months, i.e. February 28, 2015. Further, the 2014 Amendment also provided, (i) additional contribution of 1.16% on salary exceeding INR 15,000 is payable by the employee ("Additional Contribution"); and (ii) non exercise of option within the 6 months period was deemed as the employee opting out of contribution exceeding the wage ceiling (in which case the excess contribution was to be diverted to the EPF accounts).
Pursuant to the 2014 Amendment, numerous cases were filed in various forums inter alia for higher pensions based on the contributions made on actual salary amounts. On November 4, 2022, in the case of The Employees' Provident Fund Organisation and Others v. Sunil Kumar B and Others, the Supreme Court upheld the 2014 Amendment (except the Additional Contribution, which was ordered to be suspended for 6 months) and offered an opportunity to eligible employees to opt for higher pension on or before March 3, 2023 ("Last Date"), i.e. the pension to be calculated on their actual salary and not at the capped amount of INR 15,000 per month ("SC Judgement").
EPFO circular dated February 20, 2023
Pursuant to the SC Judgement, the Employees' Provident Fund Organisation ("EPFO") issued a circular on February 20, 2023 (in addition to the circulars dated December 29, 2022, and January 25, 2023) laying down the eligibility conditions for employees to get higher pensions and how they can apply for it, which are summarised below for easy reference:
# |
Status of Employee |
Eligibility to claim higher pension |
Steps for higher pension claim |
1. |
Employees in service as on September 1, 2014 and have exercised joint option and rejected by the EPFO but are contributing on wages above the cap of INR 5,000/ INR 6,500 |
Yes |
By filing a higher pension claim on or before the Last Date, along with: · Proof of joint option filed under the EPS. · Proof of remittance of EPS contribution in the PF account exceeding the wage limit of INR 6,500 or INR 5,000. · Written refusal of Assistant Provident Fund Commissioner (APFC) or EPFO to such remittance or request. |
2. |
Employees in service as on September 1, 2014 and not exercised joint option but are contributing on wages above the cap of INR 5,000/ INR 6,500 |
Yes |
By exercising the joint option on or before the Last Date, along with: · Proof of remittance of EPS contribution in the PF account exceeding the current wage limit of INR 6,500 or INR 5,000. · Proof of joint option filed under the EPS. |
3. |
Employees retired before September 1, 2014 but, have exercised joint option and the same has been rejected by the EPFO |
Yes |
By filing a joint option and higher pension claim application with documents as stated above. |
4. |
Employees retired before September 1, 2014, but not exercised joint option |
No |
Not applicable |
5. |
Employees is in service as on September 1, 2014, has exercised the Earlier Option but not exercised the new joint option pursuant to the 2014 Amendment |
No |
Not applicable |
EPFO guidelines for higher pension:
- The joint option/higher pension claim application should contain a disclaimer or declaration.
- An employee should give explicit consent in the joint option/application form for a share adjustment from EPF to EPS and a re-deposit of the amount.
- An employee should give an undertaking of the trustee for a share transfer of funds from exempted PF trust to the EPFO pension fund. The undertaking will be effective for the deposit of due contribution and interest up to the payment date within the specified time.
- The employer's contribution share refund will be deposited with the interest rate declared under para 60 of the EPF Scheme, 1952, for employees of unexempted establishments.
- The EPFO will issue further circulars regarding the deposit method and pension computation.
- An employee can raise a complaint on EPFiGMS portal when they face a grievance to get a higher pension after submitting the application and payment of the due contribution, if any.
- Online facility for submitting applications for validation of joint options to the employees who retired before September 1, 2014 and had exercised joint options before their retirement had been provided on the EPFO website till March 3, 2023, which now stands extended to May 3, 2023 (vide EPFO press release dated March 13, 2023).
Implications of opting for higher pensions:
For eligible employees, who now opt for a higher pension based on actual pay, the pensionable salary is not capped at Rs. 15,000 per month. This will result in a higher government-guaranteed pension after retirement. However, once an eligible employee opts for higher pension, his EPF balances accumulated so far with interest will be permanently transferred to the EPS and thus, the EPF lumpsum payout that he receives at retirement will reduce.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.