All employees can opt for EPFO pension scheme: Supreme Court

Source: The post is based on the following articles: 

– “All employees can opt for EPFO pension scheme: Supreme Court ” published in The Hindu on 5th November 2022. 

– “Centre, employees for detailed study of EPFO case verdict” published in The Hindu on 5th November 2022. 

What is the News?

The Supreme Court has upheld the Employees’ Pension (Amendment) Scheme, 2014 of the Employees’ Provident Fund Organisation as “legal and valid” while reading down certain provisions.

What is EPFO Pension scheme?

The Employees’ Provident Funds and Miscellaneous Provisions Act 1952 originally did not provide for any pension scheme. 

In 1995, through an amendment, a scheme was formulated for employees’ pension. The scheme which is administered by the EPFO aims to provide employees with pension after the age of 58. 

Both the employee and the employer contribute 12% of the employee’s basic salary and dearness allowance to the EPF. 

The employee’s entire part goes to EPF while the 12% contribution made by the employer is split as 3.67% contribution to EPF and 8.33% contribution to EPS. Apart from this, the Government of India contributes 1.16% as well for an employee’s pension. Employees do not contribute to the pension scheme.

At that point of time, maximum pensionable salary was Rs 5,000 per month which was later raised to Rs 6,500.

What was the amendment in 2014?

The EPS amendment of 2014 had raised the pensionable salary cap to Rs 15,000 a month from Rs 6,500 a month and allowed members along with their employers to contribute 8.33% on their actual salaries (if it exceeded the cap) towards the EPS. It gave all EPS members, as on September 1,2014, six months to opt for the amended scheme.

However, the amendment required such members (with actual salaries over Rs 15,000 a month) to contribute an additional 1.16% of their salary exceeding Rs 15,000 a month towards the pension fund.

What is the Supreme Court ruling on 2014 amendments?

The court has struck down a requirement in the 2014 amendments that employees who go beyond the salary threshold (of ₹15,000 per month) should contribute monthly to the pension scheme at the rate of 1.16% of their salary.

The court also held that employees who were eligible to join the EPS Scheme but were unable to do so because they did not exercise their option by the deadline can do so within the next four months.

What was the government’s response to the verdict?

Ministry of Labour has said that it would come up with detailed guidelines for the employees and employers on implementing the verdict.