How EPFO’s pro rata method impacts higher pension: Key inconsistencies flagged

The EPF pension has, over time, turned into a maze of legal complexities. What started as a straightforward EPF pension has now, contrary to the recommendations of the Ministry of Labour, been calculated on a “pro-rata” basis. This has created inconsistencies, causing hardship to pensioners despite laws passed by Parliament.

Is it fair to punish pensioners through endless legal procedures?

Many EPF pensioners are worried because contributions to the pension fund were made based on proportionate salaries. Officials have been reducing pensions substantially by introducing conditions that are not mentioned in the law.

The “pro-rata” calculation method has been applied according to the amendments introduced in 2014. According to the EPFO, pensions are now calculated on this basis. So, what legal basis exists for revising the pensions of thousands of people who received higher pensions between 2014 and 2022?

Questions unanswered

• How does the law apply to those who were given full pension based on proportionate contributions?

According to Section 12 of EPS-1995, for those paying contributions based on salary limits, the pro-rata method applies only for the 60 months between September 2014 and August 2019. The eligible salary for pension was increased from ₹6,500 to ₹15,000, considering both the last 12 months and the previous 60 months average. This is why the pro-rata method came into effect. Those who contributed based on a higher proportional salary without limits are not affected by this.

• Who approved the pro-rata method without legal amendments or government gazette notification?

On what authority did EPFO revise the calculation method? Does EPFO have the power to bypass a law passed by Parliament through an internal circular?

• How does the formula introduced in 2014 change the pension calculation?

In 2014, EPF pensions were calculated based on the average salary of the last 60 months. Pensions granted on this basis still stand. What is the justification for changing this method years later?

• How can a temporary pro-rata method become permanent?

For someone retiring between September 2014 and August 2015, the pension should be calculated using the last 12 months at ₹15,000 and the previous 48 months at ₹6,500. The pro-rata method only applies to this 60-month period. It does not affect those who contributed without salary limits.

• What was Supreme Court’s take

The amendments in 2014, upheld later by the Supreme Court, specify that pension should be calculated based on the average of the last 60 months’ salary. Therefore, after August 2019, minimum pensioners subject to salary limits should also have their pensions calculated on the 60-month average. Neither the RC Gupta case (2016) nor the Sunil Kumar case (Nov 2022) mention dividing service period or imposing salary limits. EPFO cannot introduce conditions that the Court never recommended.

The EPF pension system is meant to provide social security. Pensioners should not be denied rights established by law. All eligible pensioners, whether within the salary limit or not, should receive their pension based on the last 60 months’ average without having to go to court. Authorities should be willing to remove the “pro-rata” inconsistency.

(The author is a Senior Engineer at the Social Security Cell, Palakkad Instrumentation Limited.)