A recent Supreme Court ruling upholds most, but not all, of the significant changes made in 2014 to requirements for participating in and funding the social security Employees’ Pension Scheme, 1995 (EPS). The ruling also permits certain employees to elect by March 3, 2023, to base their EPS benefits and contributions (including for past service) on uncapped pay. Implementing such elections will be complex for employers and employees. The government issued limited guidance on December 29, 2022, but questions remain, and further guidance may be provided. The ruling may bring to an end several years of uncertainty following earlier High Court rulings rejecting elements of the 2014 changes.
Since 1995, in addition to participating in the social security defined contribution Employees’ Pension Fund (EPF), eligible employees also participate in the defined benefit EPS, with the latter partially funded by diverted employer EPF contributions. A monthly pay cap (increased in 2014 to 15,000 Indian rupees from 6,500 rupees) applies for both participation and calculation purposes, though it’s very common for employers to provide supplemental EPF contributions on pay above the cap. Before September 2014, employees and employers could agree to base EPS contributions on uncapped pay (with EPS pension benefits calculated accordingly), but the 2014 changes eliminated this option for new EPS joiners and closed EPS participation to new entrants earning over the cap.
Under the November 4, 2022 Supreme Court ruling:
The deadline for employees to elect to have their employer’s EPS contributions (and their EPS pension benefits) based on uncapped pay is short. Employers should prepare for employees potentially opting to contribute more to the EPS prospectively, and to support the calculation of any retroactive higher contributions, the communication of these to employees and the EPF Organization, and the transfer of funds from EPF accounts to the EPS. Implementation questions remain, including whether the government will seek to require that employers pick up the 1.16% contribution that formerly was supposed to be paid by employees.
