Background
Employees who work for organisations that are covered by the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act), are also covered by the Employees’ Pension Scheme, 1995 (EPS). EPS came into effect from November 16, 1995, and envisaged a contribution of 8.33% of reckonable salary, which was capped to a statutory threshold. This statutory threshold has changed over time from Rs. 5,000 per month to Rs. 6,500 per month and to finally Rs. 15,000 per month. Hence, the contribution to EPS, under normal circumstances, does not exceed Rs. 1,250 (i.e., 8.33% of Rs. 15,000). This contribution is taken from the employer’s portion of Provident Fund contribution, i.e., 12% of full reckonable salary.
It should be noted that Paragraph 11(3) of EPS provided an employee with the option to contribute on higher/ uncapped salary, to reap a higher pension on retirement. However, vide Notification No. G.S.R. 609(E), dated August 22, 2014, w.e.f. September 1, 2014, the proviso to Paragraph 11(3) of EPS was deleted. This nullified the choice of an employee to exercise the right to contribute to EPS on higher/ uncapped salary, and subsequently earn higher pension.
Judgements of the Supreme Court, Kerala High Court and Delhi High Court in October 2016, October 2018 and May 2019, respectively, moved towards restoring the option of higher/ uncapped pension. A review petition was also heard by the Supreme Court. Finally on November 4, 2022, a three Judge bench at the Supreme Court passed its judgment in the case of the Employees’ Provident Funds Organisation (EPFO) & ANR. etc. vs. Sunil Kumar B. & ORS etc. This judgement upholds the right of existing employees to opt for higher pension by contributing to EPS on higher/ uncapped salary.
Over the last few months, WTW has shared real time market updates around the impact that the Supreme Court judgement of November 4, 2022 will have on employees and employers.
WTW strongly recommends that employers assess the related financial implications and prepare for implementation. This includes conducting employee awareness sessions, drafting employee communication material and providing a pension calculator to enable employees to make an informed choice. WTW and its team of actuaries and pension experts, are available and will be happy to support you as required.
We will continue to monitor this space and share more updates when available. You may subscribe to these updates, by filling up the form on the right hand side or write to WTWIndia for any questions or guidance around understanding the impact of this judgement.
