EPFO to challenge order on higher pension outgo

Contributions to EPS limited and is not adequate to pay a higher pension, says EPFO

The Employees Provident Fund Organisation (EPFO) plans to move the Supreme Court to review a high court order that allowed workers to draw pension on a wage above the current salary ceiling of Rs.15,000 per month. The current monthly contribution toward employees pension scheme (EPS) is limited and is not adequate to pay a higher pension, according to the retirement fund body. Any binding order on it will make the organisation financially unviable, two government officials said requesting anonymity.

“We are readying for a review petition. Pension contribution by EPFO subscribers is based on a Rs.15,000 salary ceiling. If pension outgo is calculated on the total salary above the Rs.15,000 threshold, it will be tough to maintain. It will be a negative cash flow and we may fall short of several thousand crores every year,” said one of the two officials mentioned above.

At present, every month an organized sector employee pays 12% of his basic salary as mandatory EPF contribution and a matching amount is contributed by the employer.

Of the employer’s contribution, 8.33% goes towards pension contribution and the rest 3.67% to the provident fund corpus. EPFO plans to move the apex court though the top court dismissed a special leave petition (SLP) filed by it last month against a Kerala high court order on higher pension outgo. There are three key factors hindering the EPFO from making a higher pension payout, said the other official mentioned above. First, there is no rule about collecting a higher pension contribution.

Second, a lower contribution for decades by an employee makes it untenable to get a higher pension. Third, the differential pension contribution (more by well paid subscribers based on actual salary and less by low income workers based on a Rs.15,000 salary threshold) needs a different accounting system that is not in practice at EPFO right now. “The government needs to subsidise a higher pension. Financially, EPFO is not equipped to pay that,” the second official said.

A fund crunch has already prompted the EPFO to shelve a plan to double the minimum pension from Rs.1,000 per month to Rs.2,000 per month, the official said. This was despite an internal panel of the retirement fund manager recommending an increase in the pension for EPFO subscribers.

EPFO does not have enough surplus to double the pension on its own and needs financial support to implement the scheme, which will benefit people getting a pension of less than Rs.1,000, Mint reported on 28 March. After announcing an 8.65% interest rate for its 60 million subscribers in February for 2018-19, the surplus with the retirement fund body was around Rs.150 crore, a threeyear low.

The Kerala high court had in October last year observed that while some workers have made more contribution voluntarily towards EPFO, there pension calculation was on the Rs.15,000 salary ceiling, which was not fair on workers post their retirement.

The judgement led to a debate on how a significant number of EPFO subscribers may demand pension on their actual salary and not based on the salary ceiling which is the yardstick for PF contribution.

EPFO gets an EPS contribution of around Rs. 36,000 crore per annum.

Mint, 01st May 2019

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