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RSTV: THE BIG PICTURE- EPF REDEFINED


RSTV: THE BIG PICTURE- EPF REDEFINED


Introduction:

An essential component of savings and pensions in Indian middle class and working class gets redefined after recent orders of Kerala High Court and after the confirmation by a Supreme Court. The Supreme Court dismissed a plea filed against a Kerala High Court order that had asked Employees Provident Fund Organisation to provide pension to all retiring employees. Rather than capping the figure to Rs 15,000 per month. In effect, all retiring employees will now get pension on their full salary instead of the Rs 15,000 cap.

In September 2018 a division Bench of the High Court of Kerala had nullified the amendments made to the Employees’ Pension Scheme in 2014 after a detailed hearing upon as many as 507 petitions filed by various organisations and individuals challenging the Employees’ Pension (Amendment) Scheme of 2014. According to the new rules, introduced in the year 2014, new employees who earned more than the capped wages that means Rs 15,000  would not be eligible for EPS. The bench comprising CJI Ranjan Gogoi, Justice Deepak Gupta and Justice Sanjiv Khanna dismissed the plea filed by EPFO saying that it finds no merit in the special leave petition and hence, restoring the orders passed by the Kerala High Court.

 

Employees Provident Funds Organisation:

  • 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 17.14 crore accounts (Annual Report 2015-16) pertaining to its members.
  • The Employees’ Provident Fund came into existence with the promulgation of the Employees’ Provident Funds Ordinance on the 15th November, 1951. It was replaced by the Employees’ Provident Funds Act, 1952. The Employees’ Provident Funds Bill was introduced in the Parliament 1952 as a Bill to provide for the institution of provident funds for employees in factories and other establishments. The Act is now referred as the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 which extends to the whole of India except Jammu and Kashmir. The Act and Schemes framed there under are administered by a tri-partite Board known as the Central Board of Trustees, Employees’ Provident Fund, consisting of representatives of Government (Both Central and State), Employers, and Employees.
  • The Central Board of Trustees administers a contributory provident fund, pension scheme and an insurance scheme for the workforce engaged in the organized sector in India. The Board is assisted by the Employees’ PF Organization (EPFO), consisting of offices at 135 locations across the country. The Organization has a well equipped training set up where officers and employees of the Organization as well as Representatives of the Employers and Employees attend sessions for trainings and seminars. The EPFO is under the administrative control of Ministry of Labour and Employment, Government of India.
  • The Board operates three schemes – EPF Scheme 1952, Pension Scheme 1995 (EPS) and Insurance Scheme 1976 (EDLI).

 

Employees’ Pension Scheme

The Employees Pension Scheme (EPS) was brought into force in the year of 1995 to cater to the employees of the organized sector. The scheme is applicable to all employees who are covered under the Employees Provident Fund (EPF) Scheme. Employees covered under this scheme will receive pension on a permanent basis, the pension amounts will eventually pass on to the family members upon the death of the employee.

Features of the Scheme

The following are some of the salient features of the Employee Pension Scheme:

  • It is a guaranteed pension plan authorized and supported by the Government, wherein the stipulated amount will be remitted to the employee upon retirement, without any changes to the same.
  • Employees who are members of the EPF scheme are automatically enrolled into the EPS scheme
  • Every employee whose monthly salary combined with DA is Rs 15,000 or lesser, must enroll into this scheme.
  • The monthly pension amount will not be less than Rs 1,000.
  • Pensions can be availed when the employee attains the age of 50, but there will be a reduction in the amount of eligible pension.
  • The widow/widower of the deceased employee will receive pension upon the employees’ death. Children will receive pension until they attain 25 years of age.
  • If the widow/widower opts for a re-marriage, the children of the employee will be the recipients of enhanced pension as such children are categorized as orphans.
  • Any child who is physically challenged will receive pension for his/her entire lifetime.

 

Amendment in EPS in 2014

The following amendments were made under EPS, with effect from 1 September 2014.

  • Wage ceiling for the purpose of contribution was revised from INR6,500 to INR15,000 per month.
  • New membership to the EPS would be applicable to employees whose pay is less than or equal to INR15,000 per month on the date of membership.
  • Maximum pensionable salary for the purpose of calculating monthly pension, earlier limited to wages of INR6,500 was increased to INR15,000.
  • The provison in relation to higher contribution towards pension scheme was deleted. The option to contribute to pension on higher wages had to be exercised within six months from 1 September 2014 (extensible by the Employees’ Provident Fund Organisation (EPFO) by an additional six months)
  • If the option was not so exercised, the contribution to the pension fund would be calculated only on the wage ceiling.
  • The member can contribute towards pension fund over and above the wage ceiling, provided that the Government’s share of contribution i.e. 1.16 per cent per month on the salary exceeding the statutory limit is also paid by such a member.

 

What was the plea?

The Special Leave Petition filed against a Kerala High Court order sought to reversal to the rules where pension was provided only to employees retiring with an income up to Rs 15,000 per month. According to these rules, new employees who earned more than the capped wages would not be eligible for EPS. Existing employees who were contributing on higher salary could continue to do so provided they made fresh applications along with the employer in a year’s time, failing which their contributions would be restricted to the capped wages.

 

What was Kerala HC decision in October 2018?

The Kerala High Court in 2018 had nullified the amendments made to the Employees’ Pension Scheme in 2014. 

 

Supreme Court ruling in 2019:

In April 2019, the Supreme Court dismissed the SLP11 filed by the EPFO as having no merit.     

 

How will SC order affect people?

By rejecting the plea, the Supreme Court today upheld the HC order. In effect, all retiring employees will now get pension on their full salary instead of the Rs 15,000 cap.

The Employees’ Provident Fund is a retirement benefit scheme that was structured to provide financial security to employees of factories and other establishments.

While 12 per cent of the basic salary and dearness allowance have to be contributed by all employees earning up to Rs 15,000 per month (not mandatory for others), the employer component (12 per cent) has to be contributed mandatorily in case of all employees. The employer’s component is split into EPF (3.67 per cent) and the Employees’ Pension Scheme (8.33 per cent).

 

Conclusion:

  • This is an important ruling which may have significant implications for employees / employers covered under the EPF Act.
  • This ruling could help employees in contributing towards the pension fund on higher wages. A large number of employees/ employers may start approaching EPFO to enhance their contribution on EPS retrospectively in order to get the benefit of higher pension.

Another point for consideration is whether the following amendments made under the notification in 2014 and quashed by the Kerala High Court in 2018, shall be valid, including:

  • Increase in wage ceiling and pensionable salary from INR6,500 to INR15,000 per month
  • Non-coverage of new employees (including International Workers) under EPS if their monthly pay exceeds INR15,000

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