Higher EPS Pension by EPFO – Impact of Recent Supreme Court Judgement for EPS Subscribers And Pensioners

What is EPFO?

EPFO stands for employees provident fund organization. It’s a social security organization, responsible for providing social security to employees engaged in the organized sector.

This organization was founded in the year 1952 under the employee’s provident fund and miscellaneous act, with the aim of providing social security by assisting CBT (Central Board of Trustees) with regard to managing compulsory contributions in provident fund scheme and insurance scheme. The EPFO is administered by the ministry of labor and employment of the Government of India.

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SEE ALSO: EPF Withdrawal Rules 2018

Higher EPS Pension by EPFO – Impact of Recent Supreme Court Judgement for EPS Subscribers And Pensioners

How EPFO works?

The EPFO is responsible for managing and regulating these 3 schemes. Given below are the three main components of the EPF account:

• Employees provident fund scheme 1952: This scheme helps accumulate a sizable amount of money from the monthly earnings of en employee for taking care of post retirement expenses. This scheme not only accumulates a sizeable corpus, but also provides interest on the fund accumulated. The employee can withdraw the funds from PF account on retirement from service. Partial withdrawal is allowed from the Provident Fund account for education, illness, house construction and wedding related expenses.
• Employees’ pension scheme 1995: Provides pension to members of the PF scheme, post retirement. This scheme provides superannuation or monthly benefit after retirement. In case of death of the beneficiary, the pension is extended to the widow/ dependent children/ nominee.
• Employees’ deposit- linked insurance scheme 1976: Provides a lump sum benefit proportionate to deposit/ period of contribution (limited to Rs 6 lakhs), in case of death while in service. Benefit provided in case of death of an employee who was a member of the scheme at the time of death. Benefit amount 20 times that of the wages. Maximum benefit of Rs 6 Lakh.

Components of your Employees Provident Fund Account (EPF Account):

A salaried who makes regular contributions to the EPF scheme, makes a 12% contribution of his monthly salary towards the EPF account. The EPF is deducted from the total salary from the time he starts rendering service in an organization or company.  EPF contribution includes deposit made by both the employee and the employer.  

The employee contributes 12% of the basic salary plus dearness allowance (12% of basic + D.A) towards EPF. Your employer also contributes 12% towards provident fund account that is further routed towards various components of your PF account. Out of 12% contribution from your employer, 3.67% is invested in the employees provident fund scheme. The remaining 8.33% goes towards your Employee’s Pension Scheme.

SEE ALSO: PF Withdrawal Procedure - EPF Withdrawal Form, Rules, Status Online

How is EPS Pension calculated?

For the purpose of understanding this concept, let’s assume Mr. Ashutosh Singh joined service after 15^th November 1995. The pension calculation is different for older employees.

EPS Pension = (Pensionable annual Salary X Number of Years Service) /70.

So for older employees, pensionable annual salary is calculated as average of last 5 years contribution to EPS.

Herein lies the key difference. Under the old rules, this could not be higher than Rs 15,000 a year after 1^st Sep 2014 and Rs 6,500 per year before that.

According to the new rules, if you contribute 8.33% of your basic + DA, this amount would be used in the revised EPS pension calculation.

The number of Years Service = 10 (minimum eligibility of EPS pension) to maximum 35 years of service. If the service is 20 years or more, 2 years will be added as a bonus.

If the number of years of service is less than 10 years, you can withdraw the EPS amount.

SEE ALSO: EPF Loan Eligibility Calculator

Higher EPS Pension and Supreme Court Judgment order:

After a long wait, the Supreme Court had made a landmark judgment in favor of subscribers to EPS scheme. The subscribers of the EPS scheme will henceforth be eligible for higher pension. Previously the requests of the subscribers were turned down by the Provident Fund offices.

Post Supreme Court judgment, the subscribers to the EPS scheme are eligible to receive higher pension. So, no-wage ceiling limit leads to higher contributions to EPS and this enables an employee receive higher pension. But, very few EPF members were aware of this clause.
Based on the above points, let’s see the impact of this judgment under different scenarios:

• In case you joined service after September 2014 and started contributing to the EPF scheme, then EPS is not applicable to you.
• If you have started contributing to the EPF/EPS after September 2014 with a salary of less than Rs 15,000, EPS is applicable till your basic salary reaches Rs. 15,000.
• If you have contributed higher EPS amount and have retired and the EPFO denies a higher pension, than you will have to return the excess EPF withdrawal amount as well as the interest. You will then be able to claim higher pension amount.
• If you have been contributing to EPF scheme prior to 2014, you can submit an application through your employer to the EPFO that you would like to contribute 8.33% of full salary instead of statutory limit. The higher contributions can be accepted from the date of your application and not retrospectively.
• Also keep in mind that the income received from pension is taxable. So, you can also look for other tax saving options to invest in rather than EPS.
• The pension income from EPS account is not adjusted to inflation. It is pre defined and fixed monthly amount.
• In case you are approaching retirement and have not accumulated much of retirement corpus, then you can consider opting for higher EPS contribution.
• If you are a retiree and have contributed to EPS as per ceiling limit, then you will get a revised pension. The reason is you are no longer a part of the EPS scheme and there is no employer contribution involved.
• EPFO may eventually merge with the NPS scheme.
• In case the contribution to the EPS account is increased with retrospective effect to give pension on full salary, a commensurate amount needs to be transferred from the employee’s EPF account to EPS account. Besides this, the interest earned by the money for the period it remained with EPF, should also go to EPS.

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