Impact of SC Judgement Dated 04.11.2022 on Higher Pension With Illustration

Explained Impact Of Supreme Court (SC) Judgement Dated 04.11.2022 On Higher Pension (With Illustration of Estimated Revised Pension and Differential Amount Payable)

The story so far: Thousands of working individuals who are eligible for pension under the Employees’ Pension Scheme-1995 (EPS-1995) of the Employees’ Provident Fund Organization (EPFO) and those who already draw pension have been litigating in various courts for several years, seeking to invoke a provision in the scheme by which pension benefit can be substantially increased. A three-judge bench of the Supreme Court ruled in the matter on November 4, 2022 where the EPFO appealed various orders favoring employees issued by the Kerala, Rajasthan, and Delhi High Courts.

Employees’ Pension Scheme (EPS-95) offers pension on retirement, disablement, pension to widow and pension for nominees.

Recently on 4^th November 2022 the Honorable Supreme Court has given the decision that the employee may opt for higher pension by contributing to EPS-95 on actual/ uncapped salary rather than on capped salary.

This article explains how much EPS Pension you will get after retirement as per Supreme Court verdict and pension payable prior to Supreme Court verdict on 4.11.2022.

1. Gist of Supreme Court verdict and background

i. EPS-95 Effective From: The Employees’ Pension Scheme, 1995 (EPS-95) came into effect from 16.11.1995.

ii. Contribution on Capped Salary: Presently the contribution to EPS 95 is based on capped salary which is Rs.15,000 pm at present and the contribution on which comes to Rs.1,250 (i.e., 8.33%*15,000).

iii. Clause Deleted w.e.f. 01.09.2014 for Higher Pension: With effect from 16.03.1996, the proviso was added to paragraph 11(3) of the scheme giving an option to the employer and employee for contribution on salary exceeding the capped salary to reap a higher pension on retirement. However, vide Notification No. G.S.R. 609(E), dated August 22, 2014, w.e.f. 01.September 2014, this provision was deleted and nullified the choice of an employee to exercise the right to contribute to EPS on higher/ uncapped salary, and subsequently to earn higher pension.

iv. Previous Judgments: Earlier judgements of Kerala HC and Delhi HC in October 2018, May 2019 respectively, moved towards restoring the option of higher/ uncapped pension. A review petition was also heard by the SC and finally on November 4, 2022, a three Judge bench at the SC passed its judgment in the case of the Employees’ Provident Funds Organization (EPFO) & ANR. etc. vs. Sunil Kumar B. & ORS etc.

v. Latest Judgement of Supreme: By its verdict on 04.11.2022 the SC has given the decision to uphold the right of existing employees to opt for higher pension by contributing to EPS on higher salary.

vi. Eight weeks’ time to EPFO to implement the scheme: The SC has directed the EPFO to implement the directives within 8 weeks of time.

2. Overview of Employee Pension Scheme-95 ( EPS-95)

Employee provident fund organization (EPFO) manages the pension account of all those who are contributing to EPF including private trust. The feature of Pension Scheme is as under:

i. Scheme is called: As employees’ pension scheme 1995 (EPS-95) and comes into force on 16.11.1995.

ii. Scheme cover: EPS-95 & employee family pension scheme 1971 just before commencing of EPS-95.

iii. Pension Age 58/60: Employee can start receiving pension after attaining the age of 58 or 60 year at his option.

iv. Guaranteed pension: This scheme gives a guaranteed monthly pension after retirement.

v. EPFO manages: This is managed by EPFO of pension a/c of all those who are contributing to EPF including private trust.

vi. Capped EPS contribution :

[8.33%*5,000=Rs. 417 from 16.11.1995 to 07.10.2001]

[8.33%*6,500=Rs. 541 from 08.10.2001 to 31.08.2014]

[8.33%*15,000= Rs. 1250 from 01.09.2014 to till date]

vii. Lifelong pension: Pension is available to the member & upon his death to the members of the family.

viii. After 10 years of Service: Eligible for pension only after a minimum service of 10 years.

ix. Maximum & Minimum Pension: One can get maximum of Rs. 7,500 pm and minimum of Rs.1,000 pm.

x. Maximum service for the calculation of service: 35 years.

xi. The fraction of service: For 6 months or more is treated as one year.

xii. Taxability: Pension is taxable under the Income Tax Act, 1961 under the head Income from Salary or other sources as the case may be.

xiii. EPS contribution is from Employer Contribution: Out of the employer’s monthly contribution of PF of 12%, an amount @ 8.33% goes into EPS and rest of the amount to EPF. Suppose an employee has salary( Basic + DA ) of Rs. 1,00,000 pm and employer contribution to PF is 12% pm then Rs.1250 ( i.e. 15000*.8.33 % ) will go to EPS and rest of the amount Rs. 10750 will go to EPF as employer contribution.

xiv. This is not an NPS Scheme: This EPS scheme should not be confused with National Pension Scheme (NPS). NPS is a scheme for which separate deduction under section 80CCD of Income Tax is available. Under this scheme no income tax deduction is available for contribution to EPFO .

3. Who will get Pension from EPFO

i. To The Subscriber: The subscriber gets pension (as per the formula in the scheme) so long as he is alive.

ii. To The widow : After the death of the subscriber, the widow gets pension equal to 50% of pension payable to member on the date of his death subject to min of Rs.1,000 pm. In case of two or more widows, Pension shall be payable to eldest surviving widow. On her death, it shall be payable to next surviving widow if any. Eldest means seniority with reference to marriage date.

iii. To The Children: If the deceased member has any surviving children falling within definition, they shall also be entitled to monthly pension in addition to widower pension. The pension in this case is equal to 25% of widow/widower pension to each child subject to a maximum of 2 children at a time till 25 years of age.

4. Manner of Calculation of Contribution under EPS-95

The calculation of Pension contribution is illustrated as under:

Description	Amount
Monthly salary (Basic + DA + Special Pay + Stagnation pay, if any) which is to be considered for the purpose of PF calculation.	1,00,000
Employer Contribution 12% of Salary (A)	12,000
EPS Contribution @ 8.33% on capped salary 15,000 [8.33% *15,000] (B)	1,250
Balance Amount will go to employees PF a/c (A-B ) [12,000-1,250]	10,750

5. How to Calculate Retirement Pension Admissible Under The Scheme

What are the Criteria

i. Monthly Contribution made to Pension Fund and

ii. Number of Years of Service Rendered.

There are 2 Scenarios in which pension are to be calculated:

Scenario 1: If you joined after 15.11.1995

Scenario 2: If you joined before 15.11.1995 & retiring after that date

Scenario 1 : Formula for pension, if you joined after 15.11.1995

EPS Pension = Average Salary X Number of Years of Service

70

What is Number of Years of Service and Average salary in calculating Pension

• Eligible for pension only after the 10 years of contributing to EPS, else withdraw your EPS amount.
• Maximum service for the calculation of service period is 35 years.
• If you have completed >20 years of service then add 2 years as bonus service.
• Average Salary (salary of preceding 60 months from the date of exit) means pensionable salary
• Pensionable Salary means capped salary on which you were contributing in EPS ( Rs. 15,000/Rs. 6,500/Rs 5,000)

Illustration: Calculation of Pension for Scenario-1 (joined after 15.11.1995)

Example 1.

What pension Mr. X will get if he works for 14 years from 1 Jun 2015 with his average salary of Rs. 20,000 p.m.

EPS Pension = Average Salary X Number of Years of Service

70

EPS Pension = 15000 X 14 = 3,000 pm So Mr. X’s pension from 1 Jun 2029 will be Rs. 3000.

70

Example 2:

Mr. X renders maximum employment of 33 years with capped salary of Rs 15,000

EPS Pension = 15000 X 35 =7,500 The Maximum amount of pension would be 7500 pm

70

Note: Number of years of service taken above is 35 Years i.e.33 years + 2 years bonus Service as the service rendered is >20 years.

Scenario 2: Formula for pension if you joined before 15.11.1995 & retiring after 19.11.1995

Pension for Past Service Period Prior to 16.11.1995

• Table A as given below are used to calculate pension amount for the past period prior to 16.11.1995. Pension amount in this case depends on the salary amount and the number of years of service till 15/Nov/1995.
• Example : If a person had a salary of Rs. 3000 on 15.11.995, and he had worked for 16 years till 16.11.1995, then using the table A, he would get pension of 135 pm for service before 16/11/1995.

TABLE A:

Years of Past Service	Salary Up to ₹ 2500	Salary> 2500
Up to 11 years	80	85
11-15 years	95	105
15-20 years	120	135
Above 20 years	150	170

Enhanced Pension for Past Service Period

(Who joined before 15.11.1995 and retiring after 15.11.1995)

If any employees attains his 58 years of his age after 16.11.1995, his pension amount will be multiplied by a factor stipulated in table “B” as given below.

For Example: If the above employee , who has worked for 16 years prior to 16.11.1995 and retires on 20/11/1996 ( worked more than one year but less than 2 years after 15.11.1995 ) would get pension of Rs. 151.47 (135 x 1.122).

TABLE B: Selection of Factor for Multiplication (Counting the service period rendered after 16.11.1995)

less than 1 year	1.039
less than 2 year	1.122
less than 3 year	1.212
less than 4 year	1.309
less than 5 year	1.413
less than 6 year	1.526
less than 7 year	1.649
less than 8 year	1.781
less than 9 year	1.923
less than 10 year	2.077
less than 11 year	2.243
less than 12 year	2.423
less than 13 year	2.616
less than 14 year	2.826
less than 15 year	3.052
less than 16 year	3.052
less than 17 year	3.560
less than 18 year	3.845
less than 19 year	4.152
less than 20 year	4.485
less than 21 year	4.843
less than 22 year	5.231
less than 23 year	5.649
less than 24 year	6.101
less than 25 year	6.589
less than 26 year	7.686
less than 27 year	7.686
less than 28 year	8.301
less than 29 year	8.965
less than 30 year	9.682
less than 31 year	10.457
less than 32 year	11.294
less than 33 year	12.197
less than 34 year	13.173

6. Illustration Showing Complete Calculation Of Pension Of Employee Who Joined Service Prior To Introduction Of EPS-95 And Retired Thereafter

(Joined before 15.11.1995 and retiring after that)

Pension For The Past Service
Date of Joining of service of Mr. X Salary as on 15/11/1995 Retirement date Past service : From 01.06.1985 to 15.11.1995 Past Pension for 10 years of service Enhancing factor for 22 years of service from 16.11.1995 till retirement at 58 years on 01.01.2018 Past Service Benefit (Table A x B):Rs 85 x 5.649 “A”	01/06/1985 Rs. 15,000 01.01.2018 10 years Rs. 85 From Table A 5.649 From Table B. Rs. 480
Pension for Future Service
Pensionable Service from 16/11/1995 to 01.01.2018 Bonus year for service >20 years (After 15.11.1995) Pensionable Salary (Last 5 years) Pension Admissible for the Period after 15.11.1995 ( 11,600 x 24/70 ) “B” Total Pension: A +B = Rs. 480+ Rs. 3977	22 years 2 years Rs 11,600. Rs 3,977 Rs 4457

7. Table Showing Calculation of Contribution Payable By Employee Based On Capped & Uncapped Salary And Revised Pension Amt.

(Assuming Starting Salary of Employee Rs. 50,000 pm with Annual Increase of 8%)

8. Table Showing Aprox. Pension Amount Based Upon The Actual Salary/Uncapped Salary

Total Year of Service	Service Period Including Bonas	Year of Retire-ment	Approx Average Salary Including DA Per Month
			30000	50000	75000	100000	200000	300000
1	1	1996	429	714	1071	1429	2857	4286
2	2	1997	857	1429	2143	2857	5714	8571
3	3	1998	1286	2143	3214	4286	8571	12857
4	4	1999	1714	2857	4286	5714	11429	17143
5	5	2000	2143	3571	5357	7143	14286	21429
6	6	2001	2571	4286	6429	8571	17143	25714
7	7	2002	3000	5000	7500	10000	20000	30000
8	8	2003	3429	5714	8571	11429	22857	34286
9	9	2004	3857	6429	9643	12857	25714	38571
10	10	2005	4286	7143	10714	14286	28571	42857
11	11	2006	4714	7857	11786	15714	31429	47143
12	12	2007	5143	8571	12857	17143	34286	51429
13	13	2008	5571	9286	13929	18571	37143	55714
14	14	2009	6000	10000	15000	20000	40000	60000
15	15	2010	6429	10714	16071	21429	42857	64286
16	16	2011	6857	11429	17143	22857	45714	68571
17	17	2012	7286	12143	18214	24286	48571	72857
18	18	2013	7714	12857	19286	25714	51429	77143
19	19	2014	8143	13571	20357	27143	54286	81429
20	20	2015	8571	14286	21429	28571	57143	85714
21	23	2016	9857	16429	24643	32857	65714	98571
22	24	2017	10286	17143	25714	34286	68571	102857
23	25	2018	10714	17857	26786	35714	71429	107143
24	25	2019	11143	18571	27857	37143	74286	111429
25	27	2020	11571	19286	28929	38571	77143	115714
26	26	2021	12000	20000	30000	40000	80000	120000
27	29	2022	12429	20714	31071	41429	82857	124286

Conclusion

By looking to the above figure of ROI, it looks fair enough that we should go for higher pension. But it depends upon many other factors such as:

1. Viability of the scheme from the EPFO perspective for giving the higher pension.

2. In case of EPS-95, there is no provision of return of capital (ROC). After the death of subscriber the family gets pension but not ROC.

3. Other Options of Investment of the differential amount payable to EPFO for getting higher pension should be explored.

4. Calculation is based on the assumed figure. True figure will depend on the actual salary data and other details of the employee.

5. At this stage, we would probably need more clarity, which is possible post the legislative changes in the EPFO rules.

6. Exempted employers would have to transfer the necessary amounts to the EPFO.

7. Employers also need to understand the implications of SC judgement in order to effectively communicate this to their employees and to facilitate the implementation of the same.

8. Option of higher pension will depend on the individual to individual based upon the family size.

9. Availability of old/complete record with Employer is also an issue

10. Implementation of the SC judgement will depend on the EPFO response.

******

Author is working in a Maharatna PSU and can be reached at [email protected]

Disclaimer: The views expressed in this article is solely of the author and in no way it can be considered as the views of management or organization.