Higher pension row: EPFO appeals against High Court verdict scrapping ‘pro-rata’ formula

New Delhi: The Employees' Provident Fund Organisation (EPFO) has filed an appeal against the Punjab and Haryana High Court order that struck down the controversial 'pro-rata' calculation method, which critics claim undermines the Supreme Court's ruling on higher PF pensions.

The EPFO moved a division bench to challenge the single bench's verdict delivered on May 27. Last year, a single bench of the Himachal Pradesh High Court had similarly ruled that the pro-rata system—which significantly reduces pension payouts—was unfair. However, within days, the EPFO managed to obtain a stay order from a division bench there. The 27 May ruling by the Punjab and Haryana High Court is considered even stronger than the previous one.

The Punjab and Haryana High Court's judgement came in response to petitions filed by 15 EPF members from Punjab whose pensions were substantially reduced due to the pro-rata method. The High Court quashed an email sent by the EPFO on February 14, 2024 and a subsequent circular issued on January 18, 2025, both of which directed that the pro-rata method be used to calculate higher pensions. Furthermore, the High Court directed that the pension arrears cut via the pro-rata method must be paid with an eight per cent interest rate to both the petitioners and other affected individuals.

Conventionally, pensions are determined by taking the average salary of the final 60 months of service. In contrast, the pro-rata method splits the service period into two segments, pre-September 2014 and post-September 2014, resulting in a sharp reduction in the final pension amount. Multiple legal battles are currently underway across various high courts, with litigants arguing that this approach violates both the Supreme Court's directive and the Employees' Pension Scheme (EPS). In the Kerala High Court alone, there are around 600 pending cases related to higher pensions.

The pro-rata mechanism was introduced through an amendment to the Employees' Pension Scheme of 1995 in the year 2014. The primary objective of that amendment was to raise the statutory pensionable salary limit from ₹6,500 to ₹15,000.

Given this context, the High Court ruled that when calculating the pension of employees who contributed based on their actual salaries without considering the statutory cap, the service periods prior to and following 2014 cannot be segregated using the pro-rata formula. The single bench explicitly clarified that the pro-rata method cannot be applied if there is no ceiling limit on the salary.