The Employees Provident Fund Organisation (EPFO) recently introduced some changes in the Employees’ Pension Scheme (EPS) following which eligible subscribers will be entitled to receive a higher pension.
This effectively will happen because pension will be calculated on the EPS contribution of 8.33 percent on the total salary rather than on the maximum cap of Rs 15,000. It is worth mentioning that this ceiling earlier was Rs 6,500.
The EPFO subscribers should know that the new rules will be applicable only to those EPF subscribers who joined the EPF scheme before September 1, 2014 and who are still working.
Also, the higher pension rules will not apply to the employees who exercised the option earlier when the rules were changed on Sep 1, 2014.
The circular that the EPFO issued on Feb 20, 2023 states that employees with their employers may submit joint option form to the concerned regional office.
It is imperative to note that the employees who earn more than Rs 15,000 per month and who joined after Sept 1, 2014, are no longer entitled to employees’ pension scheme.
The new pension rules say that if your salary is more than Rs 15,000 and you opt for a higher pension now then your pension will be calculated on the higher salary and not on the threshold of Rs 15,000.
For the unversed: employee’s contribution to EPF (12% of salary) goes to the EPF account while 8.33 percent of employer’s contribution, in some cases, goes towards Employees Pension Scheme (EPS).
The entire issue relating to these rules revolves around the salary on which the calculation of 8.33 percent is to be based. If the salary for the purpose of this calculation increases from Rs 15,000 to (say) Rs 20,000 then 8.33 percent of a higher amount will naturally be higher.
The formula to calculate pension is this: (Pensionable salary X pensionable service)/70. Earlier the pensionable salary was Rs 15,000 but with an increase in salary, the amount of pension some employees will be entitled to will be much higher.
The latest EPFO circular effectively sets the ball rolling for Supreme Court’s verdict. The court gave the order on Nov 4, 2022 with a deadline of four months. The deadline, therefore, expires on March 3, 2023 for EPFO subscribers.
Nearly two weeks prior to the expiry of this deadline, EPFO released a circular explaining the process to apply along with a detailed eligibility criteria to do so.
The new rules came into effect because the Supreme Court gave a verdict in a case filed by several employees’ unions which had challenged the changes in rules which were introduced on September 1, 2014.
Those rules stated that the pensionable salary was to be capped at Rs 15,000 and also that employees who earn more than Rs 15,000 and who joined after this date (Sep 1, 2014) were not eligible for the EPS benefits.
These rules were challenged in the court that agreed with the government on keeping out employees who joined after Sept 1, 2014. But those who had joined before that date were given an option to seek higher pension by allowing a higher deduction on their salary.
The EPFO subscribers should know that the new rules will be applicable only to those EPF subscribers who joined the EPF scheme before September 1, 2014 and who are still working.
Also, these new rules will not apply to the employees who have already exercised the option.
The EPFO circular states this: “The members of the scheme who did not exercise option as contemplated in the proviso to paragraph 11(3) of the pension scheme would be entitled to exercise option under paragraph 11(4) of the post amendment scheme.”
Employees are meant to submit joint option under para 11(3) and 11(4) to the concerned regional office.
To apply, one must make a joint option with disclaimer and declaration as may be specified.
In case of share that needs to be adjusted from provident fund to pension fund, explicit consent of the employee will be given in the form.
The joint option form must contain the proof of remittance of employer’s share inn PF on higher wages exceeding the prevalent wage ceiling of Rs 5,000/6,500 and proof of joint option of EPF scheme duly verified by the employer.
The EPFO circular clearly states that the method of deposit and that of computation of pension will follow through subsequent circular.
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