Amended EPS is upheld, SC opens window to opt for higher annuity

A three-judge bench of Chief Justice of India UU Lalit and Justices Aniruddha Bose and Sudhanshu Dhulia said the amendments to the scheme shall apply to employees of exempted establishments as they do for the employees of regular establishments. There are about 1,300 companies in the list of the EPFO’s (Employees’ Provident Fund Organisation) exempted establishments.

In a nutshell, Friday’s Supreme Court ruling gives EPFO members, who have availed of the EPS, another opportunity over the next four months to opt and contribute up to 8.33 per cent of their actual salaries — as against 8.33 per cent of the pensionable salary capped at Rs 15,000 a month – towards pension.

The EPS amendment of August 22, 2014, had raised the pensionable salary cap to Rs 15,000 a month from Rs 6,500 a month, and allowed only existing members (as on September 1, 2014) along with their employers exercise the option to contribute 8.33 per cent on their actual salaries (if it exceeded the cap) towards the pension fund. This was extendable by another six months at the discretion of the Regional Provident Fund Commissioner. It, however, excluded new members who earned above ?15,000 and joined after September 2014 from the scheme completely.

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

Those existing members who did not exercise the option within the stipulated period or extended period, were deemed to have not opted for contribution over the pensionable salary cap and the extra contributions already made to the pension fund were to be diverted to the Provident Fund account of the member, along with interest.

Sources said only a negligible percentage of EPFO members – with salaries higher than the Rs 15,000 a month pensionable salary cap – had opted for contributions based on their actual salaries.

The Supreme Court decision came on appeals filed by the EPFO against the judgements of the Kerala, Rajasthan and Delhi High Courts, which had quashed the Employees’ Pension (Amendment) Scheme, 2014.

Exercising original powers under Article 142, the Supreme Court extended the time to opt for the new scheme, by four months. “There was uncertainty regarding the validity of the post amendment scheme, which was quashed by the High Courts. Thus, all employees who did not exercise the option but are entitled to do so, but could not due to interpretation of the cut-off date, ought to be given certain adjustments,” it said

Under the pre-amendment scheme, the pensionable salary was computed as the average of the salary drawn during the 12 months prior to exit from membership of the Pension Fund. The amendments raised this to an average of 60 months prior to exit from the membership of the Pension Fund.

The Supreme Court agreed with the changes and said “we do not find any flaw in altering the basis of computation of pensionable salary”. However, the court held the amendment requiring members to contribute an additional 1.16 per cent of their salary exceeding Rs 15,000 a month as ultra vires the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

“Since the (1952) Act does not contemplate any contribution to be made by an employee to remain in the scheme, the Central Government under the scheme itself cannot mandate such a stipulation,” the Supreme Court said, and even if the government wanted to, it could only have done this by way of a legislative amendment, it said.

“At the same time, we cannot ignore the fact that the pension amount to be paid has been calculated on projections that the corpus would include the option of employees’ additional contribution of 1.16 per cent. We also cannot mandate the Central Government to contribute to a pension scheme, in absence of a legislative provision to that effect. It would be for the administrators to readjust the contribution pattern within the scope of the statute and one possible solution could be to raise the level of the employer’s contribution in the scheme,” the Supreme Court said.

The bench said it is suspending the operation of this part of the judgment for six months “so that the legislature may consider the necessity of bringing appropriate legislative amendment on this count”.

Experts said the government should not tweak the existing distribution between provident fund and pension. “The (pension) realisation was higher in the earlier regime. The argument of the government was that workers at all levels should have more liquidity, which is what the trade unions are resisting. The workers should get to decide rather than the government taking the call. The government should provide more options to the worker – whether she should opt for higher provident fund or old system of higher annuities – and it should not tamper with the existing distribution between PF and pension,” K R Shyam Sundar, labour economist and professor at XLRI, Xavier School of Management Jamshedpur, said.