The Employees’ Provident Fund Organisation (EPFO) has restored the earlier option of linking Employees’ Pension Scheme (EPS) contributions to the full basic salary, as per a report in Times of India (ToI). The government’s new move is expected to offer relief to a limited section of subscribers who had previously opted for higher pension contributions.
EPFO’s decision follows long-standing confusion that existed ever since the provident fund body capped pensionable salary in September 2014, claims the report.
The current pensionable salary cap is Rs 15,000.
When did EPFO introduce current EPS pension cap?
EPFO fixed the minimum monthly pension at Rs 1,000 on September 1, 2014. At the same time, the government body also capped the pensionable salary at Rs 15,000 per
month. This Rs 15,000 salary means basic salary plus dearness allowance (DA).
Because of the Rs 15,000 pensionable capping, the maximum EPS monthly pension was restricted to Rs 7,500/month.
New employees joining EPFO with basic salaries plus DA above Rs 15,000 were not allowed to opt for pension calculation based on their actual basic salary. This capping significantly reduced potential pension benefits for EPFO subscribers whose basic salary and DA were more than Rs 15,000.
How EPF and EPS contributions work
As per EPFO rules, both employer and employee contribute a maximum of 12% of basic salary and DA towards the Provident Fund (PF). A portion of the employer’s contribution, 8.33% of the basic pay and DA or Rs 1,250, whichever is higher, goes to an employee’s EPS corpus that is used at his retirement to disburse monthly pension.
EPS facility is available only to EPFO subscribers who joined their service before September 1, 2014.
However, for those whose basic salary and DA is up to Rs 15,000, EPS facility is provided mandatorily.
Since pension is calculated based on the pensionable salary, most employees receive relatively low monthly pensions even though their basic salary may be much higher than Rs 15,000.
Higher EPS pension option before September 1, 2014
Before the September 1, 2014, capping of Rs 15,000, employees had the option to contribute towards pension based on their actual basic salary and DA instead of the wage ceiling. The higher EPS pension option was commonly exercised by public sector undertaking (PSU) employees as they agreed to make higher contributions. As a result, some employees received pensions amounting to nearly half of their last-drawn basic salary.
However, after the pensionable salary was capped in September 2014, the option for higher contribution was effectively discontinued. There was also confusion regarding those employees who had already opted for higher pension before the September 1, 2014, amendment.
What has changed now for EPS pension?
As per the ToI report, the recent clarification from the government restores the earlier option of contributing towards pension based on the actual basic salary and DA. ToI quoted officials as saying, this is not a new benefit but a restoration of the previous provision.
The move applies only to employees who had already exercised the higher pension option before the 2014 amendment. It does not automatically apply to all EPFO subscribers.
The option reportedly depends on the employer’s willingness to contribute a higher amount. Without the employer’s approval, employees cannot unilaterally opt for higher pension contributions.
Who can benefit from EPFO’s new order?
While the restoration of earlier pension rules is significant for eligible employees, it is expected to benefit only a small group of EPFO members, primarily those who had earlier chosen higher contributions.
For most private sector employees, where PF contributions are restricted to the current pensionable salary of Rs 15,000, pension payouts will continue to remain modest.
Key Highlights of EPFO clarification about EPS pension
EPFO pensionable salary capped at Rs 15,000 (basic+DA) since 2014.
Earlier option allowed pension based on the actual basic salary
The option was discontinued after the Rs 15,000 wage ceiling was introduced
Recent EPFO clarification restores the higher EPS pension option
The new rule benefit is limited to employees who had opted for higher pension earlier