Shine Mohan
30 November 2025, 10:20 AM IST
The letter also notes that the Labour Minister had explicitly instructed that pensions be calculated based on the average salary of the last 60 months prior to retirement.
Representational image | Photo: Agencies
New Delhi: A letter from the Ministry of Labour & Employment reveals that the Employees Provident Fund Organisation (EPFO) ignored a central government directive and, in the process, undermined the Supreme Court’s 2022 order on higher provident fund (PF) pension.
The letter, dated May 31, 2023, from an Under Secretary to the Central Provident Fund Commissioner, states that EPFO itself created procedural obstacles that prevented employees and employers from contributing to higher wages.
The letter also notes that the Labour Minister had explicitly instructed that pensions be calculated based on the average salary of the last 60 months before retirement.
“It is clear that the above problem is of EPFO’s own creation as the formats for both (i) applying for contributing on higher wages by employer/employee and (ii) for giving permission by EPFO for the same were not prescribed by EPFO and further EPFO offices did not issue permissions for allowing contribution on higher wages though EPFO continued to receive contribution on higher wages,” the letter states.
The ministry further underscores that the situation arose due to “EPFO’s mismanagement,” adding that the organisation was now using its own lapses as grounds to deny eligibility for a higher pension. “Thus, the whole issue has arisen due to EPFO’s mismanagement. Now, EPFO is citing this as a major reason for cases not becoming eligible for pension on higher wages. This is becoming a major roadblock in implementing directions of the Hon’ble Supreme Court,” it says.
Following the May 2023 directive, EPFO issued a circular clarifying that for employees joining pension schemes after September 1, 2014, “Pension shall be calculated based on average monthly pay drawn during the contributory period of service in the span of 60 months preceding the date of exit from the membership of the pension fund.”
For those who joined before September 1, 2014, the pension would “be calculated based on average monthly pay drawn during the contributory period of service in the span of 12 months preceding the date of exit from the membership of the pension fund.”
Pro-rata method
With the adoption of the pro-rata method, where service periods before and after September 1, 2014, are treated separately, pension amounts have dropped significantly, compared to calculating pension using the average salary of the last 60 months.
This is because the pension for the service period prior to 2014 is being calculated on the basis of the 2014 salary level. As a result, those who had contributed to the pension fund based on their actual salary and had been expecting a higher pension are the ones who have been hit hard by the EPFO’s decision.
Supreme Court order sidestepped
The Supreme Court had ruled on November 4, 2022, that higher PF pensions should be granted to eligible members. However, the ministry’s letter points out that until May 2023, none of the 15.9 lakh applications submitted were deemed eligible.
“As per data presented by EPFO during the meeting, around 15,90,473 applications/joint options have been submitted till date. However, till date not a single case has been found to be eligible for pension on higher wages,” the letter says.
Although the issues related to providing a joint option for higher salary contributions were eventually resolved, the introduction of the pro-rata system enabled the EPFO to reduce pension amounts, effectively undermining both the government’s directive and the Supreme Court’s order.
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