Decline in EPS contributions triggers viability concerns
Contents News/Article Date: 12th January 2023
Relating to which Act The Employees Provident Funds & Miscellaneous Provisions Act, 1952
Applicable to which State: All the establishments in the States with PF coverage
Type: Current – Newspaper report and the audited annual accounts for FY21 show contributions to the scheme’s pension fund dropped
Earlier -EPFO Head Office, Ministry of Labour & Employment, Government of India, Circular No. Pension/2022/54877/15149 issued by Additional Central PF Commissioner (Pension)
Pertains to employers and employees
Relevance of this news: Karma Management Global Consulting Solutions Pvt. Ltd is in the business of Payroll, Outsourcing and Regulatory Compliances from its inception in 2004 and since then, has brought in a lot of efficiencies and technological upgradations with experts on its roll, to ease the hassles of Payroll Processing, Temp Staffing On-boarding, Regulatory and Payroll compliances by providing customized solutions to all its elite clients.
In the last instance, the Additional Central PF commissioner (Pension) has taken action to implement the directions contained in para 44 (ix) of the judgement dated 4/11/2022 of the Hon’ble Supreme Court within the stipulated timelines.
This means that –
- The employees who had retired prior to 1st September 2014 without exercising any option, will not be entitled.
- The employees who had retired prior to 1st September 2014 and exercised the option, will be entitled
- In the matter of the Division Bench in the case of R C Gupta (Supra), the fund authorities will implement the directives within a period of 8 weeks
- The following may apply online at epfindia for validating their options – (a) pensioners contributing on salary exceeding the prevalent wage ceiling of 5000/- or 6500/- and (b) exercised joint option under the proviso to para 11(3) of the pre-amendment scheme while being members of EPS 95 and the option of which was declined by PF authorities.
- Application forms for the above, the facility of which will be announced shortly, will be required to be carried out in the prescribed manner.
In the current instance –
A dip in Employees’ Pension Scheme (EPS) contributions has triggered concerns about the retirement programme’s sustainability and its ability to meet pension payments.
The audited annual accounts for FY21 show contributions to the scheme’s pension fund dropped 2.7% to ₹50,562 crore from ₹51,953 crores in FY20.
Subject: Decline in EPS contributions triggers viability concerns
For greater details, appended below is the complete news item
Decline in EPS contributions triggers viability concerns
A dip in Employees’ Pension Scheme (EPS) contributions has triggered concerns about the retirement programme’s sustainability and its ability to meet pension payments.
The audited annual accounts for FY21 show contributions to the scheme’s pension fund dropped 2.7% to ₹50,562crore from ₹51,953 crores in FY20.
Contributions had grown at a double-digit rate in the preceding four years, hitting a high of 16.4% in FY18, data showed.
Following the 2014 amendments to the scheme, the new EPFO subscribers joining after September 1, 2014, and earning in excess of ₹15,000 a month are not eligible to join the pension scheme.
Since wages have risen substantially because of inflation since 2014, many of the new EPF subscribers are not eligible for EPS, which has impacted contributions.
The executive committee of the Employees’ Provident Fund Organisation (EPFO), which manages the scheme, has raised concerns over the decline in contributions to the scheme that already has funding issues.
A valuation of the fund as on March 31, 2019, revealed an actuarial deficit or the difference between income and what it needs to pay out. This gap could widen if contributions decline.
The Central Board of Trustees (CBT) of the EPFO reviewed the scheme at its 232nd meeting held in October last year. There’s been a decline in both employers’ and government contributions. According to the committee, the drop in EPS contributions is largely due to members having wages in excess of ₹15,000 a month at the time they start working, according to the minutes of the meeting.
“These members contribute to the Employees’ Provident Fund (EPF) and the Employees’ Deposit Linked Insurance (EDLI) schemes but are not members of EPS,” the committee observed.
The EPFO runs three schemes out of contributions made by employers and employees toward the social security of workers – the EPF Scheme 1952, the Employees’ Pension Scheme 1995 (EPS), and Insurance Scheme 1976 (EDLI).
The EPS is a ‘defined contribution-defined benefit’ programme that provides a minimum pension of ₹1,000 a month to subscribers out of accumulated contributions. In the case of the pension scheme, employers contribute 8.33% of employee wages while the government provides 1.16% of wages through budgetary support up to a maximum wage of ₹15,000 per month. The actual pension depends on salary and the number of years of service.
The scheme has been a source of concern for some time.
“It is not the cash flow deficit for the present year but the long-term projected deficits impacting the sustainability of the EPS,” labour minister Bhupender Yadav, also CBT chairman, told the board, the minutes showed.
