Higher pension: EPFO secures stay on Himachal HC verdict rejecting pro-rata method

New Delhi: The Himachal Pradesh High Court’s verdict that deemed the Employees Provident Fund Organisation's (EPFO) pro-rata calculation method for higher pension as "unjust" has been stayed by a division bench, favouring the EPFO.

Earlier, a single bench had ruled against the EPFO’s method, which segments pensionable service into two parts — before and after September 1, 2014 — causing a major reduction in pension amounts for many retirees.

Justice Sandeep Sharma on September 9 had called the method "completely indefensible" and ordered concerned EPFO officials to appear before the court if appropriate corrective measures were not taken within 10 days.

The division bench, headed by Chief Justice G S Sandhawalia, has now stayed this order in response to an appeal filed by EPFO officials.

What is the pro-rata method?

According to the original Supreme Court judgment from November 4, 2022, EPF members are entitled to receive higher pensions based on their actual salary. Normally, pension is calculated by multiplying the average salary by the number of pensionable service years, divided by 70.

However, EPFO introduced a "pro-rata" formula, splitting service periods into two — pre and post-September 2014 — and calculating the pension differently for each. For the pre-2014 service period, the EPFO uses the older salary limits (based on the average of the last 60 months salary), which hugely reduces the overall pension for many.

Challenging this, several pensioners approached High Courts across India, alleging unfair reduction in their pension due to this method, which violated the spirit of the Supreme Court’s 2022 ruling.