The EPFO has directed its field offices to start implementing a landmark Supreme Court judgment allowing members a higher pension. The judgment had increased the upper limit for contributions to the Employees’ Pension Scheme (EPS). The petitioners in the judgment were also allowed to make backdated contributions according to the revised upper limit, which would enable them to get higher pensions. However, until recently, reports appeared in the media that the judgment was not being implemented by the EPFO. This is what appears to have now changed.
What was the judgment about?
Both employer and employee contribute 12% each of the salary to the EPF account. Out of the employer’s contribution, 8.33% is allocated to the EPS. However, a ceiling of Rs 15,000 was placed for this 8.33% calculation. In other words, a maximum of Rs 1,250 (8.33% of Rs 15,000) could be allocated towards the EPS.
A 1996 amendment to the EPF Act allowed employees to raise this proportion to 8.33% of the full pensionable salary rather than just Rs 15,000. In practice though, the Employees’ Provident Fund Organization (EPFO) did not allow this to take place. This policy of the EPFO was challenged by the petitioner.
What the court ruled
The Supreme Court ruled in favour of the petitioners that the EPS contributions could be 8.33% of the full salary (and dearness allowance). It allowed the petitioner to make backdated payments for the years in which he had missed contributing (about Rs 15 lakh). In return, his pension was raised by the appropriate amount.
The net effect caused a significant hike in the employee’s pension (from about Rs 2,300 per month to Rs 30,500 per month). Also, 50% of the pension is payable to the employee’s wife after his demise.
Following this change of stance by the EPFO, you can increase your EPS contributions from 8.33% of Rs 15,000 to 8.33% of your full salary. This will fetch you a much higher pension on retirement.
You can read more about the judgement here.