The Supreme Court order on PF pensions

Source: The post is based on the article “The Supreme Court order on PF pensions” published in The Hindu on 9th November 2022. 

Syllabus: GS2 – Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Relevance: About the recent court ruling on EPF Pension.

News: The Supreme Court upheld the amendments to the pension scheme made by the government in 2014. The court recognised the government’s powers to amend the pension scheme prospectively or retrospectively under Section 7 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

What is EPF Pension scheme, and what was the Supreme Court ruling on the 2014 amendments?

What is the reason for increased litigation after the amendment to EPF Pension scheme?

An option to increase pension is provided for in EPS-1995. For pension, 8.33% of the employer’s contribution to the employee’s PF account must be remitted into the pension fund on actual basic pay, dearness allowance and retaining allowance.

The request for a higher pension should be made in the form of an option exercised by both employee and employer. But due to information asymmetry, most members did not exercise this option and have been contributing to the pension fund only within a salary cap (which was revised from ₹6,500 to ₹15,000 eight years ago), and not on actual pay.

The Government amended EPS-1995 effective in 2014. The amendment provided a time limit of six months for the members, jointly with their employers, to opt for higher pension based on their actual salary.

The time limit was not known to the employees as there was no communication to them.

Even after the court set aside the time limit in R.C. Gupta case in 2016, many applications for higher pension were rejected by the EPFO citing the cut-off date.

In the present case, the court said that all employees can exercise this right within four months.

What will be the impact of the recent SC ruling on EPF Pensions?

a) The serving employees can opt for higher pension now, transferring the stipulated part of the employer’s contribution to the pension fund, b) 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, c) Persons retired prior to September 1, 2014 without exercising the joint option in the unamended scheme are excluded from the present four month time, d) The members opting for higher pension would have to contribute an additional 1.16% on salary exceeding ₹15,000 as a temporary measure for six months.