SC verdict on EPF pension scheme a mixed bag, grey areas remain: Petitioners

Anand Prince

Supreme Court | Photo: PTI

The Supreme Court on November 4 upheld the validity of the 2014 Employees' Pension (Amendment) Scheme.

The order was passed by the three-judge bench comprising Chief Justice U.U. Lalit, Justices Aniruddha Bose and Sudhanshu Dhulia on a batch of petitions filed by Employees Provident Fund Organisation(EPFO) and the Centre, challenging the verdicts of the high courts of Kerala, Rajasthan and Delhi, which had quashed the 2014 scheme.

Though the apex court found the amendment pushed by the Centre and EPFO as 'legal and valid' it has made some interventions that are widely considered as employee-friendly.

Mathrubhumi English approached two of the 16 petitioners who fought against the amendment to know their perspectives on the verdict. However, before describing that we are listing some basic information to have better understanding on Employees' Pension Scheme.

Before knowing those views let's look into the backdrop to have a better understanding of the Employees' Pension Scheme(EPS) amendment.

It was in 1995 that the government notified EPS provision for those employees under Employees' Provident Fund (EPF). For those joining EPS, 8.33% of your employer's contribution will go into the EPS account, meant to fund a guaranteed pension after retirement. The EPFO will declare a fixed interest on accumulated balance yearly and pay a lump sum on retirement.

As per the scheme of 1995, EPFO will give pension at retirement age by following the formula: Average of last 12 months pay×number of qualifying years of service/70. In this, pensionable salary=basic pay+DA+personnel pay. While, maximum pensionable salary was capped at Rs 5,000. The then, Rs, 5,000 cap was catchy for most employees as salary scales were less. The government was also seen engaged in publicising the move as pro-employee and many joined with it.

In 1996, the government notified December 1, 2004 as the cut-off date for eligibility and mandated that giving joint options (with employers) is a requirement. However, this was allegedly a secret move and only few knew about the two requirements. As a result many became ineligible for the scheme. Later over the RC Gupta case, the cut-off date requirement was struck down.

In 2011 and 2014, the maximum pensionable salary ceilings were capped at Rs 6,500 and Rs 15,000, respectively. Meanwhile, it also came to light that the scheme had no futuristic vision as salary increased, but not pension. Because, the pension determination failed to consider the price index and standard of living. This was deemed anti-employee move. Similarly, many companies had a bad practice of maintaining salary pay with allowance higher than basic salary in all years except in the retirement year. This apparently burdened EPFO.

In 2014, many changes were brought to the scheme as per the amended act. They are:

  1. Maximum pensionable salary was capped at Rs 15,000 per month.
  2. Pension formulation equation was tweaked. Only the number of qualifying years of service since 1995 will be considered. Similarly, the average salary to be considered became that of the last 60 months instead of the last 12 months.
  3. A new option was brought in where an employee or employer should contribute at the rate of 1.16 per cent of their salary to the extent such salary exceeds Rs 15,000 per month as an additional contribution.
  4. If the employer is not willing for the new option exceeding Rs 15,000, then employees individually can apply till a new cut-off date. However this option will be only applicable for those who gave option by 2004 cut-off date.

Wins and losses: Sunil Kumar, KSFE Senior Manager
I would say the verdict gives us both wins and losses. Our main contentions were against:

  • capping the maximum pensionable salary at Rs 15,000 per month
  • the requirement of the employees to contribute at the rate of 1.16 per cent of their salary to the extent such salary exceeds Rs 15,000 per month as an additional contribution
  • cut-off date for eligible employees and the requirement of giving option to avail benefit under the enhanced pension coverage prior to 2014
  • pension calculation on the basis of average salary of last 60 months
Now if we look into the verdict, our wins are:

  • employees do not have to contribute at the rate of 1.16 per cent of their salary to the extent such salary exceeds Rs 15,000 per month as an additional contribution
  • eligible employees who had not opted for enhanced pension coverage prior to 2014 can jointly do so with their employers within the next four months
While in all other matters the apex court has upheld arguments of EPFO and Centre, which are our losses.

Treading cautiously: Ani G, Retired KSFE Senior Manager

As of now we have no plans to give a review petition on the matter. However, this verdict is not pro-employee as the October 2018 verdict of the Kerala High Court setting aside the Employees Pension (Amendment) Scheme. Because it upheld all contestations highlighted from our side.

One of the major setbacks in the present verdict is that the average salary of the last 60 months itself will be considered instead of the last 12 months.

Separately, with specific to 1.16 percent condition, the verdict said that part of the judgment would be kept in suspension for six months to enable the authorities to generate funds.

"We do so to enable the authorities to make adjustments in the scheme so that the additional contribution can be generated from some other legitimate source within the scope of the Act, which could include enhancing the rate of contribution of the employers. We are not speculating on what steps the authorities will take as it would be for the legislature or the framers of the scheme to make necessary amendments. For the aforesaid period of six months or till such time any amendment is made, whichever is earlier, the employees' contribution shall be as stop gap measure. The said sum shall be adjustable on the basis of alteration to the scheme that may be made," it said.

This in turn poses a concern as discretion on 'adjustments' and 'alteration' resides with EPFO and Centre.

Also, due to the grey areas in the verdict a section of lawyers are confusing the employees to make their business out of this contingency. So we are treading cautiously on the matter. However, if legal fight is to be continued we will pursue it.

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