1. Further to my article EPS 95 Scheme Eligibility for Higher Pension dated 05.01.2023, I have received several queries regarding the eligibility for a higher pension. Following Supreme Court Judgements dated 04.11.2022, confusion prevails among pensioners and working individuals people: will they also be eligible for higher pensions on submitting a joint option with the Authorities? There is no clarity on circulars issued by the EPFO in this regard.
An attempt has been made to clarify these issues with the help of Illustrations.
2. Background: Employees provident Fund Act 1952 prescribes 12 percent of the employee’s salary [basic pay and Dearness Allowance (DA)] contribution to the EPF by both the employee and the employer.
2.1 In the year 1995, the pension scheme was introduced vide Section 6A of the EPF Act. Under the said scheme, the employer’s contribution of 8.33 % was required to be diverted to the pension scheme. The maximum pensionable salary for the purpose was Rs 5000/- which was later raised to Rs 6500/-.[The pensionable salary is the part of an employee’s salary that is considered when calculating pension contributions].
2.2 In March 1996, a proviso was inserted in clause 11(3) of the EPS scheme giving the employer and employee an option to contribute a percentage of the actual salary, provided the employee and the employer have no objection.
2.3 Employees who were members of EPS 95 and willing to exercise contribution on actual wages in the pension fund were required to fill and submit a joint option Form to get the pension on actual salary
2.4 The employers were contributing 12% of the actual salary (Basic+DA) in the EPF account as an employer’s contribution. On receipt of the options form, they were to transfer 8.33% of salary exceeding Rs 5000/- or Rs 6500/- as the case may be, to the pension fund out of the employer’s contribution.
2.5 A joint declaration by the employer and the employee was required to be submitted to the Pension Authorities on the date the salary exceeds Rs 5000 or Rs.6500.
2.6 On September 1, 2014, the EPFO amended the Scheme to increase the limit of pensionable salary to Rs 15000/-per month.
2.7 A fresh option was to be exercised jointly by the employer and the employee for continuing pension contribution on actual salary. The option was required to be exercised by the member within six months from the 1st day of September 2014.
3. The whole issue is about restrictions regarding the time limit for exercising the option.
4. Hon’ble Supreme Court vide judgment dated 04.11.2022 has conveyed instructions in this regard.
Category of employees: The employees can be broadly classified into the following categories based on eligibility for a higher pension.
5. Employees who retired before 2014 without exercising the option: The employees who retired before 1st September 2014 without exercising any option have already exited from membership. They would not be entitled to the benefit of a higher pension (Para 44(iv) of Supreme Court Judgment dated 04.11.2022)
5.1 Illustration: Mr. Anuj was working with XYZ Limited. In 1995, his pensionable salary per month (Basic+DA) was Rs 6000/-. He was required to submit a joint option from the day his salary exceeds Rs 6500/- pm. Since Mr. Anuj was not aware of the proviso to 11(3), he did not exercise the option till the date of retirement in Aug 2005. Though the salary at the time of retirement was 10000/- per month, the amount contributed towards pension was restricted to Rs 542/-(8.33% of Rs 6500) only. The monthly pension was ascertained considering pensionable salary as Rs 6500/- only. He is getting a meager pension and is not entitled to the benefit of a higher pension.
6. Employees retired before 2014, and their Joint Option request was denied by the Authorities. EPFO vide circular dated 29.12.2022 laid down the condition for employees to receive a higher pension. The circular states that employees must have exercised the option for a higher pension before their retirement but was explicitly denied by the EPFO. Thus the employees who had exercised the option but the same were rejected by the Authorities are entitled to submit a joint option and get a higher pension.
6.1 Illustration: Mr. Bimal was also not aware of the proviso to 11(3) and retired in 2005 without exercising the option. On the date of retirement in 2005, he submitted the plea to the Authorities that proviso 11(3) was not in his knowledge and therefore higher pension benefit may be given to him.
6.2 The plea was denied by the authorities on the ground that there was a cut-off date for exercising the option.
6.3 Later on, it was held by Supreme Court in RC Gupta Case that the cut-off dates were not to determine the eligibility of employer–employee to indicate their option under proviso 11(3) for higher pension.
6.4 Now, he can submit a joint option form by login into the EPFO website.
7. Employees retired after 2014 but could not exercise the option. On September 1, 2014, the EPFO amended the act to increase the limit of pensionable salary to Rs 15000/-per month. Para 11(4) of the amendment stipulated that a fresh option be exercised jointly by the employer and employee for continuing contribution on actual salary.
7.1 Illustration: Mr. Chirag, was not at all aware of the Joint Option issue. His knowledge was limited to the fact that 12% of the employee-employer contribution is being accumulated in his retirement fund. He retired in 2018 and his account got settled. He received a lump sum PF contribution and a getting a very small amount of monthly pension (based on the amount diverted to the pension fund @ 1250 per month (before 01.09.2014 it was Rs. 542 only).
7.2 Though, he is eligible to submit the join option form but required to deposit a hefty amount towards pension contribution on actual salary. He needs to return all such amounts that he may have taken or withdrawn from the provident fund account.
7.3 The second major issue with employees like him that how to approach an ex-employer for submitting a JOINT OPTION. Some of the companies may even close as on date.
8. Serving Employees not exercised the option: This category of employees are entitled to submit the join option form as per Supreme Court Judgement dated 04.11.2022 but EPFO has not issued any guidelines so far for such employees.
The biggest challenge for such employees and their employers is to dig out records as old as 1995 and calculate the amount to be transferred from the PF Fund to the Pension Fund
9. Calculation of EPS Pension The formula to calculate the EPS pension is as follows:
(a) Monthly pension amount= (Pensionable salary X pensionable service)/70.”
(b) Pensionable salary: This refers to the average of the last drawn salary. “The pensionable salary has been defined as the average of last the 60 months’ salary.
(c) Pensionable service: This refers to the number of years for which contributions were made to the EPS account
(d) If a person superannuates at the age of 58 years and has rendered more than 20 years or more of pensionable service, then his service period will be increased by weightage of 2 years subject to a maximum of 35 years of pensionable service.
9.1 Illustration Mr. David has exercised the joint option and 8.33 % of the employer’s contribution has been amount diverted to the EPS account. His actual average salary for the last 5 years is Rs 50000/- per month. He has rendered services for 25 years
The monthly pension amount will be calculated as follows:
[50000 x 27(25+2)] / 70 = Rs 19285/-
Employees not exercised option but getting higher pension There is another category of employees who are getting higher pension because of a favourable decision given by various Courts, though they had never exercised the option.
10.1 The Supreme Court upheld the EPS-95 in 2003 in the OTIS Elevator case. The pension of 24,672 persons was revised later. Other pensioners got favourable orders from various courts subsequently. These pensioners are getting higher pensions though they had not exercised the joint option
10.2 EPFO vide circular dated 05.01.2023 instructed the regional offices of the EPFO to re-examine the cases of employees who retired before September 1, 2014, without exercising any option and were granted a pension on higher wages.
EPFO is likely to issue a follow-up circular, shortly, which would indicate the applicability of the higher pension option to other categories of employees/ pensioners, thereby completing the necessary compliance with the Supreme Court Order of November 4, 2022.
Employers are advised to stay prepared for its implementation, which may include understanding the financial implications of this option, assessing the extent of historical employee data available to them, and being ready to communicate this to their employees.
Disclaimer: The article is for educational purposes only
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