Skip to main content

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


Popular posts from this blog

SC order on RBI circular: More options for banks to tackle defaulting firms

Lenders also have the option of restructuring the loans Lenders to companies which are under stress could now have three options to deal with them if they default on loans: take a haircut as part of a one-time settlement, restructure the loans for a longer tenure as they did when corporate debt restructuring schemes were allowed, or go to the Insolvency and Bankruptcy Code (IBC) for redress. These changes in the options available to lenders come, according to PE funds and bank lawyers who are involved in the IBC process, in the wake of the Supreme Court on Tuesday setting aside the 12 February RBI circular, which allowed a 180-day window to banks to resolve a company default.But they can still find a resolution. According to a Reserve Bank of India circular, a loan becomes a non-performing asset when banks cannot find a way of recovering their money in 90 days. In short, banks still have a window to resolve the default. Lenders can take a haircut as part of a one -time settlement of du…

April GST collections at new high despite rate rationalisation in December

Goods and services tax (GST) collection touched a record high in April, exceeding Rs 1 trillion for the third time in four months. The mop-up was 10 per cent higher over the previous year. Gross collection for the month was Rs 1.13 trillion, said the finance ministry. Despite the recent rate rationalisation in December, a rise in collection was reported. Of the total collected, the CGST (central GST) contributed Rs 21,163 crore, the SGST (state GST) Rs 28,801 crore, the IGST (integrated GST) Rs 54,733 crore (including Rs 23,289 crore on import) and cess Rs 9,168 crore (including Rs 1,053 crore on import). After settlement of the IGST and the balance IGST in a 50:50 ratio between the Centre and states on a provisional basis, the CGST stood at Rs 47,533 crore and SGST at Rs 50,776 crore. The CGST target in the Union Budget for 2019-20 is Rs 6.1 trillion. “The April collection indicates the tax base is increasing gradually, with GST getting stabilised with measures such as e-way bills and…

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…