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Good news for salaried! You will get higher pension now; Here is why

Sunil Dhawan
Supreme Court Judgment on pension, Supreme Court pension ,EPFO , Supreme Court EPS, employees, pensionable wage, Kerala High Court judgment

With the start of the new financial year, 2019-20 came the good news for the salaried individuals as far as their pension in the post-retirement life is concerned. The Supreme Court on April 1, 2019, dismissed the special leave petition (SLP) filed by the EPFO against a Kerala High Court judgment.

This is what the Supreme Court wrote in its latest judgment – We find no merit in the special leave petition. The same is, accordingly, dismissed.

Higher pension based on higher wages

In 2014, the government had issued a notification bringing out some major changes in the way Employees’ Pension Scheme 1995 works.

According to Notification No.GSR 609(E), dated 22.08.2014, from September 1, 2014, the monthly pensionable wage ceiling for the Employees’ Pension Scheme 1995 was enhanced from Rs 6500 to Rs 15000. The mode of calculating the average pensionable wage was also changed.

The most contentious rule was to submit a fresh mandate jointly by the employee and the employer if they had already opted for a pension on higher salary i.e. above Rs 15,000. Such submission was to be made within a fixed time frame of six months from the date of notification.

In 2016, the Supreme Court had already made it clear that there need not be any cut-off date and employees are eligible for pension on a higher salary. EPFO had started addressing such issues and pension on higher salary was made available to some of the pensioners.

In December 2018, the Kerala High Court had quashed this Notification No.GSR 609(E) and also had set aside the various orders and proceedings related to that notification. The issue that has been addressed in the judgment is specifically for the people who were covered before 1st Sept 2014.The people may have contributed amounts in excess of the limit prescribed as there was a provision for higher contribution based on mutual consent of the employee and the employer. However, due to the amendment of 2014, their pension amount is calculated on the basis of a maximum of Rs 15,000 per month. As a result, there are people who are going to get a lower amount than what they should have received before this amendment, says Rishi Agrawal, Co-Founder and CEO, Avantis.

In response, the EPFO filed a special leave petition against the Kerala High Court Order in the Supreme Court, which has now been dismissed completely. The judgment passed by Kerala High Court has taken cognizance of this issue and has said that the amendment is not sustainable and needs a review to ensure that employees and current pensioners are not at a loss, says Agrawal.

How EPS works

The contribution by an employee towards the PF is 12 per cent of one’s basic salary and an equal amount is contributed by the employer. However, out of the employer’s share of 12 per cent, 8.33 per cent is diverted towards the Employees’ Pension Scheme. The amount that goes into EPS is, however, capped at 8.33 per cent of Rs 15,000 and not the actual salary. This means a maximum of Rs 1,250 (earlier Rs 541) can go into EPS every month, while 3.67 per cent of employer’s contributions stay in the PF of the employee.

Pension Calculation

As the contributions into the EPS is capped, so is the per month pension for the employee after retirement. The maximum monthly pension would be Rs 7500, as the pensionable salary is capped at Rs 15,000 and the service period at 35 years.

The pension is calculated based on the formula:

(Pensionable Salary * service period) / 70

Conclusion

There has been enough of back and forth with the new rules and guidelines. Taking the legal course is nothing more than buying time in the implementation of proper rules. EPFO and the government need to come out with a long term pension framework keeping in mind the interest of the existing employees, new employees looking to join the workforce in future and also that of the retired population.

Rules need to be devised based on the consultation between all the affected stakeholders and not on the ad-hoc basis that would need revisions very often. It is high time government recognises the need for a robust pension mechanism for the working class that can provide a decent base level retirement income to the retired.