Employees' Pension (Amendment) Scheme 2014 - Elucidation

On 1 April 2019, the Supreme Court of India (Supreme Court) in Employees Provident Fund Organisation v Sunil Kumar and Ors, SLP (C) 9610/2019 dismissed a special leave petition filed by the Employees Provident Fund Organisation (EPFO) against the judgment of the Kerala High Court in the case of P. Sasikumar and Ors v Union of India and Ors, (2019) ILLJ 494 Ker (Sasikumar), holding that it found no merit in the petition. The Kerala High Court had set aside the Employees' Pension (Amendment) Scheme, 2014 (EPS Amendment), which inter alia capped the maximum pensionable salary at INR 15,000 (Indian Rupees Fifteen thousand) per month and created additional obligations of payment of contribution on the salary exceeding the said ceiling.

EPFO v Sunil Kumar and Ors, SLP (C) 9610/2019

• Dismissed a special leave petition filed by the Employees Provident Fund Organisation (EPFO) against the judgment of the Kerala High Court in the case of P. Sasikumar and Ors v Union of India and Ors, (2019) ILLJ 494 Ker (Sasikumar)
• Found no merit in the petition
• The Kerala High Court had set aside the Employees' Pension (Amendment) Scheme, 2014 (EPS Amendment), which inter alia capped the maximum pensionable salary at INR 15,000 (Indian Rupees Fifteen thousand) per month and created additional obligations of payment of contribution on the salary exceeding the said ceiling.

Earlier to the EPS Amendment, Paragraph 6 of the Employees' Pension Scheme 1995 (EPS Scheme) provided that the EPS Scheme would apply to every employee who, on or after 16 November 1995, became a member of the Employees' Provident Fund Scheme 1952 (EPS Scheme). Further, Paragraph 11 of the EPS Scheme provided that the pensionable salary shall be the average monthly pay drawn during the contributory period of service in the span of the 12 (twelve) months preceding the date of the employee's exit from the membership of the employees' pension fund. The said provision had capped the maximum pensionable salary at INR 6,500 (Indian Rupees Six thousand five hundred) per month but had allowed the contribution to be made as per the actual salary of the employees at the option of the employer and the employees.

Through the EPS Amendment which became effective from 1 September 2014, the conditions of membership of the EPS Scheme underwent a change. 

• The EPS Scheme was now applicable to such employees who on or after 16 November 1995 became a member of the EPF Scheme and
• Whose monthly salary on the date of joining was less than or equal to INR 15,000 (Indian Rupees Fifteen thousand). 
• Determination of pensionable salary was as per the average monthly salary drawn during the contributory period of service in the span of 60 (sixty) months preceding the date of the employee's exit from the membership of the employees' pension fund. 
• The maximum pensionable salary was set at INR 15,000 (Indian Rupees Fifteen thousand) per month. 
• As the option of contribution on a monthly salary exceeding INR 15,000 (Indian Rupees Fifteen thousand) was allowed upon making a fresh option, such option had to be exercised within a period of 6 (six) months from 1 September 2014. 

The Sasikumar Case - P. Sasikumar and Ors v Union of India and Ors, (2019) ILLJ 494 Ker (Sasikumar) – The Kerala High

• The petitioners in Sasikumar were employees working in different establishments and had approached the Kerala High Court to challenge the validity of the EPS Amendment

• The ground that the same had placed them in an adverse position by making it onerous for them if they contribute towards the pension fund based on their actual salary

• Another contention - the cut-off date provided by the EPS Amendment for making a fresh option to contribute on the basis of a higher salary was inconsistent with the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act 1952 and the schemes framed thereunder. Referred to Paragraph 26(6) of the EPF Scheme, which does not set any cut-off date for making a similar option for employees' provident fund contribution

• The Kerala High Court held in the petitioners' favour, observing that nowhere in the EPF Act does it allow an additional rate of interest to be imposed for making contributions based on the actual salary of the employees. Since employees have the option to make contributions in excess of the wage ceiling, no other restriction could be imposed on their right to exercise such option

How to get more pension

One have to shift a significant chunk of provident fund balance to EPS account. So, for higher pension, it required to submit an application via your employer to the EFPO to deduct a sum retrospectively equal to 8.33% of basic wages towards the EPS and shift the extra amount from the PF account to the EPS retrospectively 

Impact of Pension Judgement :- 

The order of the Supreme Court dismissing the special leave petition of the EPFO and thereby reaffirming the judgment of the Kerala High Court in Sasikumar is indeed a relief for employees working across different establishments. 

The earlier position regarding membership of the EPS Scheme appears to have been restored, thereby allowing any member of the EPF Scheme, including those earning more than INR 15,000 (Indian Rupees Fifteen thousand) per month and who became members by virtue of a request under Paragraph 26(6) of the EPF Scheme, to become members of the EPS Scheme. Similarly, the pensionable salary would now be based on the average salary in the span of 12 (twelve) months instead of 60 (sixty) months. The amount of monthly pension would, therefore, increase as employees normally draw a higher salary towards the end of their service.

However, with the EPS Amendment including the ceiling of INR 15,000 (Indian Rupees Fifteen thousand) being shown the door, there is lack of clarity regarding the situation where an employer has chosen to limit the provident fund contribution to of INR 15,000 (Indian Rupees Fifteen thousand), as is permissible under the EPF Scheme. In this case, the pension fund contribution would also be based on INR 15,000 (Indian Rupees Fifteen thousand) and not the actual salary of the employees since the pension fund contribution is made from the employer's contribution (that is, 8.33% out of 12%).

Regarding the question of the date on which the Supreme Court's order becomes effective, one may take a cue from the order passed by the Kerala High Court in Sasikumar. As per the said order, the employees 'shall' be entitled to exercise their right of option without any restriction of a cut-off date. With the Supreme Court reaffirming the said order, it appears that the same would have a prospective operation regarding the option the employees may exercise under the EPS Scheme. However, it does appear that the orders passed by the EPFO in relation to exercise of fresh option based on the EPS Amendment will be impacted.

With the Supreme Court's dismissal of the special leave petition, it is hoped that the EPFO issues a clarification on the aforementioned aspects and allays confusion within the industry.