A recent circular by the EPFO has instructed its field officers that joint options for higher pension contributions by employees and employers can be exercised under specific conditions. The conditions apply to those who have already contributed on a salary exceeding the wage ceiling, did not exercise a joint option under the pre-amendment scheme, and were members before 1st September 2014. The instructions further state that an online facility will be provided for employees to exercise the option. The circular has been issued in compliance with a Supreme Court judgment and has raised concerns about lower pension benefits to EPF subscribers.
The Supreme Court used Article 142 to extend the time for opting into a new scheme by four months, due to uncertainty regarding the validity of a post-amendment scheme that had been quashed by the High Courts. The Court stated that all entitled employees who were unable to exercise the option due to the interpretation of the cut-off date should be given certain adjustments. The pre-amendment scheme used the average of the salary drawn during the 12 months prior to exiting membership of the Pension Fund to compute the pensionable salary, while the amendments raised it to an average of 60 months. The Court found no issue with altering the basis of computation of the pensionable salary. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 did not originally include a pension scheme, but a scheme was formulated in 1995 that required a deposit of 8.33% of the employers’ contribution to be made towards the provident fund corpus for the pension fund. The EPS is administered by the EPFO and aims to provide pension to employees after the age of 58. Both the employee and the employer contribute 12% of the employee’s basic salary and dearness allowance to the EPF, while the government also contributes 1.16% towards the employee’s pension. Employees do not contribute to the pension scheme.