The Employees’ Provident Fund Organisation (EPFO) recently introduced new guidelines allowing older members to opt for a higher pension under the Employees’ Pension Scheme (EPS), per the Supreme Court judgment on November 4, 2022.
The Supreme Court’s November 2022 Judgment
In their judgment from November 2022, the Supreme Court upheld the Employees’ Pension (Amendment) Scheme from 2014 but granted members an additional four months to choose the new scheme. According to Article 142, EPFO members who have availed of the EPS will have another opportunity in the coming four months to contribute up to 8.33% of their actual salaries as opposed to 8.33% of the pensionable salary capped at Rs 15,000 a month towards the pension.
Before the amendment, the pensionable salary was computed by taking an average of the salary earned during the 12 months prior to ending pension fund membership. The amendments extended this period to an average of 60 months. The court declared that requiring members to contribute an additional 1.16 % of their salary exceeding Rs 15,000 a month exceeds the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act,1952.
The New Guidelines
According to the new guidelines, employees can deduct 8.33% of their actual basic salary (Basic pay + DA) towards the EPS, resulting in higher pension amounts. Presently, employees’ EPS contributions are capped at a maximum of Rs 15,000 for the pensionable salary. For those who opt-in, the employer’s share going into the Employees’ Provident Fund (EPF) since September 2014 will be transferred to the EPS, inclusive of the interest earned.
To enjoy these benefits, employees must have been members before September 1, 2014, and continued their membership afterwards. Additionally, employees and employers who contributed on salary surpassing the wage ceiling of Rs 5,000 or Rs 6,500, and did not exercise the joint option previously while being EPS members are eligible.
About the Employees’ Pension Scheme
Administered by the EPFO, the EPS came into existence in 1995. The pension fund comprises an 8.33% deposit of the employers’ contribution towards the PF corpus. It provisions for pensions for organized sector employees after retirement at the age of 58 years. As EPF members, employees automatically become EPS members.
Both employer and employee contribute 12% of the employee’s monthly salary (basic wages plus dearness allowance) to the Employees’ Provident Fund (EPF) scheme. The EPF scheme is compulsory for employees with a basic wage of Rs. 15,000 per month. Of the employer’s share of 12%, 8.33% goes towards the EPS, and the Central Government contributes an additional 1.16% of the employee’s monthly salary.
The recent changes in the scheme offer opportunities for members to increase their pension savings and provide financial security in the post-retirement phase. It is crucial for all EPFO members to understand these changes and make informed decisions regarding their future financial planning.