Supreme Court caps maximum pensionable salary at Rs 15,000 under EPS

Order gives employees four months to join

The Supreme Court on Friday upheld the amended Employees’ Pension Scheme (EPS), which caps the basic salary of an employee at Rs 15,000 a month for the pension component derived from it to be calculated.
 

A Bench comprising Chief Justice of India Uday Umesh Lalit, Justice Aniruddha Bose, and Justice Sudhanshu Dhulia has allowed the appeals of the Employees’ Provident Fund Organisation and the Union government challenging the judgments of the High Courts of Kerala, Rajasthan, and Delhi, which had quashed the EPS Amendment of 2014.
 

“The 2014 amendments to the EPS will apply to establishments exempt and not exempt,” said Sowmya Kumar, partner at IndusLaw.
 

However, the apex court invalidated the additional contribution of 1.16 per cent by employees. But this part of the order has been suspended for six months for the authorities to generate funds or to make relevant changes/adjustments/amendments to the scheme.
 

Also, the court has given four months to employees who could not enrol in the scheme and are entitled to do so.
 

There were 58.55 million subscribers to the Employees’ Provident Fund Organisation (EPFO) till 2021.
 

Some experts say though the apex court has granted relief by extending the period of enrolling under the scheme to those who missed out, the upholding of the amendment will lead to the newly enrolled employees getting their pension capped with no option to increase their contributions under the scheme.
 

“This is a blow to employees who trusted such schemes and were eager to subscribe to them. Now, after their retirement, the amount of pension, when calculated on the basis of a meagre Rs 15,000, will come to a pittance and can barely support them in their old age,” said Mayank Arora, partner at the Chambers of Bharat Chugh.
 

This may mean employees, especially those in high-salary brackets, will have to invest in commercial financial products in the market to plan for their retirement. This decision has brought all categories of employees on the same footing, irrespective of their salaries and financial requirements.
 

On the other hand, Sanjeev Kumar, partner, Luthra & Luthra Law Offices India, said a lot of employees covered under the EPS would gain.
 

“A window has been carved out by which employees who did not enrol themselves under the scheme can now do so within four months,” he said.

The creation of the EPS
 

Employees of various establishments are covered by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (the Act), which provides for a provident fund account in the name of each employee of a covered establishment. In this account, the employee contributes 12 per cent of her/his basic salary and the employer contributes an equal amount.
 

Section 6A was inserted into the Act, authorising the creation of a scheme to provide pension to employees. Thus, the Employees’ Pension Scheme, 1995, was born.
 

According to the scheme, the maximum salary on the basis of which pension was to be calculated was Rs 6,500 per month. An amount of 8.33 per cent from the employer’s contribution (12 per cent) would go to the employee’s pension fund.
 

Later, on March 16, 1996, a proviso was added to the EPS, granting the option to the employer and the employee to contribute more to the pension fund -- at 8.33 per cent of the basic salary of the employee. 
 

The EPS was amended with effect from September 1, 2014, which limited the maximum pensionable salary at Rs 15,000 per month.
 

The EPS was amended to give an option to the existing members as on September 1, 2014, to submit a fresh application, jointly with their employers, to contribute on salaries exceeding Rs 15,000 per month.
 

However, in this case, the employee would have to make a further contribution at the rate of 1.16 per cent on the salary exceeding Rs 15,000. Also, such a fresh option would have to be exercised within six months of the date of the amendment.

Pooja Ramchandani, Partner, Employment Law Practice, Shardul Amarchand Mangaldas & Co said the Supreme Court has upheld the manner of computation of ‘pensionable salary’ basis the average monthly pay during the contributory period of service in the span of 60 months before the date of exit from the membership of the pension fund as opposed to the earlier span of 12 months. "This may impact the quantum of the pensionable salary in cases where there have been increments over the period of 60 months," she added.

The Case Study

• Employees’ Pension Scheme, 1995, capped maximum pensionable amount at Rs 6,500
• Amendment in 2014 raised the contribution to Rs 15,000
• Kerala, Rajasthan, Delhi HC struck down amendment till 2018
• EPFO challenged the matter in Supreme Court in 2019
• There are 58.55 million subscribers of EPFO till 2021