Higher Pension under EPS
- 24 Feb 2023
- 5 min read
Why in News?
The Employees’ Provident Fund Organisation (EPFO) has issued guidelines to allow a section of its older members to opt for Higher Pension under the Employees’ Pension Scheme (EPS) as per 4th November 2022 judgment of the Supreme Court (SC).
What was the SC’s November 2022 judgment?
- The SC upheld the Employees’ Pension (Amendment) Scheme, 2014 but extended the time to opt for the new scheme by four months.
- Under Article 142, the SC’s ruling gives EPFO members, who have availed of the EPS, another opportunity over the next four months to opt and contribute up to 8.33% of their actual salaries as against 8.33% of the pensionable salary capped at Rs 15,000 a month towards pension.
- Under the pre-amendment scheme, the pensionable salary was computed as the average of the salary drawn during the 12 months prior to exit from membership of the Pension Fund. The amendments raised this to an average of 60 months prior to exit from membership of the Pension Fund.
- The court held the amendment requiring members to contribute an additional 1.16 % of their salary exceeding Rs 15,000 a month as ultra vires the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
What are the New Guidelines?
- The new guidelines open the window for employees to deduct a sum equal to 8.33% of the actual basic salary (Basic pay+ DA) towards the EPS, helping to accumulate larger corpus and receive a higher pension amount.
- Currently, the EPS contribution from employees is capped at the maximum Rs 15,000 for pensionable salary.
- For subscribers who opt for this, the employers’ share going to the Employees’ Provident Fund (EPF) since September 2014 will be shifted to the EPS, with the interest earned.
- The Basic Criteria to avail the benefits are,
- Employees who were members before September 1, 2014, and continued to be a member on or after that date.
- Employees and employers who had contributed on salary exceeding the wage ceiling of Rs 5,000 or Rs 6,500.
- Employees and employers who did not exercise the joint option in the previous window while being EPS members.
What is the Employees' Pension Scheme?
- The EPS, administered by the EPFO, came into being in 1995. The pension fund was to comprise a deposit of 8.33% of the employers’ contribution towards the PF corpus.
- It makes provisions for pensions for the employees in the organized sector after retirement at the age of 58 years.
- Employees who are members of EPF automatically become members of EPS.
- Both employer and employee contribute 12% of employee’s monthly salary (basic wages plus dearness allowance) to the Employees’ Provident Fund (EPF) scheme.
- EPF scheme is mandatory for employees who draw a basic wage of Rs. 15,000 per month.
- Of the employer's share of 12 %, 8.33 % is diverted towards the EPS.
- Central Govt. also contributes 1.16% of employees’ monthly salary.