EPS 95 Scheme – Eligibility for Higher Pension
Contents News/Article Date:4th February 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: TaxGuru corporate laws – EPS 1995 explanation as a news report
Pertains to: Establishments and Members of PF Fund
Relevance of this news: Karma Global is in the business of HR Services, Payroll, Outsourcing, and Regulatory Compliances right from its inception in 2004 since then, it has brought in a lot of efficiencies and technological upgradations with experts on its role, to ease the hassles of Payroll Processing, Temp Staffing, On-boarding, Employee Life Cycle, Statutory, Regulatory, and Payroll compliances by providing customized solutions to all its elite clients.
Now Karma Management Global Consulting Solution Pvt Ltd is also fully into labour compliance for nearly 18 years and is helping both establishments and workers for the fulfillment of obligations as per the laws of the land. It has over 200 staff, both direct and indirect on its rolls and operates on Pan India basis. Recently, it has diversified into foreign shores as well, into countries like the US, UK, UAE, Canada, Philippines, and Asia for handling payroll, outsourcing, recruitment, and governance.
And in this instance: This news report concludes that the EPFO circular remains silent on many other issues arising from the November Supreme Court judgment. The pensioners are hoping that further circulars/clarifications from the body will offer some guidance on the above-mentioned aspects
Subject: EPS 95 Scheme – Eligibility for Higher Pension
Appended is the complete news item
EPS 95 Scheme – Eligibility for Higher Pension
Source: TaxGuru
- The EPFO vide Circular dated 29 Dec 2022 lays down the eligibility criteria for employees seeking higher pensions under EPS 95 Scheme. The circular is issued to comply with the Supreme Court’s direction vide judgment pronounced on 04.11.2022
- Para 44(ix) of the said judgment stipulated that the fund authorities shall implement the directives contained in the judgment within eight weeks. The timeline was to end on 03.01.2023 and that is the reason, partial guidelines have been hastily issued by the EPFO.
- The guidelines issued by EPFO vide circular dated 29.12.2022 is silent on the procedure to be followed by the serving members to avail of higher pension benefit whereas Para 44(iv) of the Supreme Court ruling clearly stated that the members who did not opt for higher pension as on 01.09.2014 should exercise option for higher pension within 4 months from the ruling (by March 03, 2023).
4 Another circular is expected from EPFO to provide guidelines on how these employees can avail of higher pension benefits.
5.1 The Employees’ Provident Fund and Miscellaneous Provisions Act were promulgated in the year 1952.
5.2 As per section 2(f) of PF Act 1952, Employees whose ‘pay’ was more than Rs 6500/- were considered as excluded employees and not eligible to be a member of the EPF Scheme.
5.3 However, section 26(6) of the Act allows them to be a member of the EPF scheme at the joint request of the employee and employer of the establishment.
5.4 In the year 1995, the pension scheme was conceived by way of the introduction of Section 6A to the EPF Act. Under the said scheme, the employer’s contribution of 8.33 % was required to be diverted to the pension scheme.
5.5 The EPS Scheme 95 restricted the maximum monthly pensionable salary as Rs 6500/- It means out of the employer’s contribution, 8.33% of Rs 6500/- only will be diverted to the pension fund.
Illustration: Mr. Anupam’s monthly salary is Rs 10000/-. Employer’s contribution towards PF is Rs 1200 (12% of Rs 10000). Salary for the purpose of EPS will be Rs 6500/- and thus Rs 542 / (8.33% of 6500/) will only be diverted to the Pension Scheme and the balance of Rs 658/- will be credited to his PF Account towards the employer’s PF contribution.
- First Option for Higher Pension in March 1996, the proviso was added to paragraph 11(3) of the scheme giving the employer and employee an option to contribute a percentage of the actual salary (i.e. not necessarily up to Rs 6,500).
7.1 As per the Proviso to Para 11(3) of the scheme – If at the option of employer and employee, 8.33% of the employer’s contribution on actual salary (higher than Rs 6500) is remitted into the pension fund, such higher salary shall be considered as pensionable salary.
7.2 There were certain restrictions as regards the time for exercising such option as it was mentioned in 11(3) proviso that option is required to be exercised from the date of commencement of the scheme or the date salary exceeds Rs 6500/-, whichever is later.
7.3 A set of employees had approached the provident fund authorities much beyond such a perceived specified date, mostly on the eve of their retirement, seeking to be included in the higher pension scheme. The point urged by them was that the amendment of 1996 was not within their knowledge, the same not having been widely publicized.
ILLUSTRATION: In the Illustration above, Mr. Anupam was not aware of the proviso added in March 96 and not exercised the option for contributing pension on actual salary i.e. His employer continued remitting Rs 542 (8.33 % on Rs 6500) instead of Rs 833 (8.33% on Rs 10000).
8.1 A set of employees approached the PF Authorities for exercising options toward a higher pension.
- The provident fund authorities had rejected their plea. According to the authorities, that was the cut-off limit.
9.1 Now, EPFO vide circular dated 29.12.2022 is allowing only those set of members who approached the authorities and their plea was rejected by EPFO The matter ultimately went to Supreme Court and in the case of R.C. Gupta (supra). It was held that the dates or time limits specified in clause 11(3) of the pension scheme were not cut-off dates. The said time limit determined the eligibility of the employer and employee to exercise their option under the proviso of 11(3) and not the cut-off time.
10.1 It was also observed in this judgment that a beneficial scheme ought not to be allowed to be defeated by reference to a cut-off date in a situation where the employer was not following the ceiling limit of Rs 6500 and deposited 12% of the actual salary. Second Option for Higher Pension On September 1, 2014, the EPFO amended the Scheme to increase the limit of pensionable salary to Rs 15000/-per month. Para 11(4) of the amendment scheme stipulated that a fresh option to be exercised jointly by the employer and employee continue to contribute on salary exceeding fifteen thousand rupees per month and the pensionable salary for the existing members who prefer such fresh option shall be based on the higher salary.
11.1 The second proviso to Paragraph 11 of the amended scheme specifies that the fresh option shall be exercised by the member within six months from the 1st day of September 2014.
11.2 Further, the fourth proviso to paragraph 11 specifies that if no option is exercised by the member within such period, it shall be deemed that the member has not opted for contribution over the wage ceiling and the contribution to the pension fund made over the wage ceiling in respect of such member shall be diverted to the Provident Fund along with interest. A Division Bench of the Kerala High Court in its judgment delivered on 12th October 2018 set aside the Employees’ Pension Amendment (Scheme), 2014. The Delhi High Court followed the view expressed by the Kerala High Court and quashed a circular issued by the provident fund authorities on 31st May 2017 precluding exempted establishments from the benefits of higher pension. A Division Bench of the Rajasthan High Court also expressed the same opinion. 54 writs petitions have been filed by the employees themselves or on their behalf under Article 32 of the Constitution of India seeking invalidation of the notification dated 22nd August 2014
Supreme Court Judgement dated 04.11.2022 A review petition was 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. The relevant points of the said judgment applicable to employees’ eligibility for higher pension are brought out in the succeeding Paragraphs
14.1 The Court said that all employees who did not exercise the option but were entitled to do so due to the interpretation of the cut-off date by authorities should get a further four months to do so from the date of the order.
14.2 The implication is that those who were members of EPS-1995 as of September 1, 2014, and beyond could exercise the joint option (first and second option). This means that serving employees can now opt for a higher pension, transferring the stipulated part of the employer’s contribution to the pension fund.
14.3 Other members who contributed to the fund beyond that date but retired, would have to remit the stipulated dues into the pension fund of the EPFO.
14.4 The court specifically excluded those who retired before September 1, 2014, without exercising the joint option in the unamended scheme, since they had already exited the membership.
Exempted Establishment: The bench of Chief Justice of India U.U. Lalit, Aniruddha Bose, and Sudhanshu Dhulia directed that the amended scheme of 2014 would apply to employees of exempted establishments, which are those allowed by law to maintain their contributions in Provident Fund Trusts rather than with the PF authorities.
14.1 They must now give an undertaking along with the joint option, to transfer the stipulated employer’s contribution, matching the quantum that would have been due for transfer for accounts maintained by PF authorities.
15 Conclusion: The EPFO circular remains silent on many other issues arising from the November Supreme Court judgment. The pensioners are hoping that further circulars/clarifications from the body will offer some guidance on the above-mentioned aspects.