Explained: Supreme Court's EPF decision and what it means for you

The Supreme Court on Friday in an important verdict upheld the Employees’ Pension (Amendment) Scheme, 2014.

The ruling, handed down by a bench comprising the then chief justice of India UU Lalit and justices Aniruddha Bose and Sudhanshu Dhulia, also struck down the requirement in the 2014 amendments that mandated employees contribute 1.16 per cent of the salary over Rs 15,000 per month.

But what does this mean? And how will it impact you? Let’s take a closer look:

First, let’s briefly examine EPF and EPFO.

EPF is a compulsory savings scheme for salaried individuals introduced by the Government of India.

It is managed by the Employees’ Provident Fund Organisation (EPFO), which was set up under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

Interestingly, the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 originally did not provide for any pension scheme.

In 1995 an amendment created a scheme to give employees’ pension.

Part of an employee’s monthly salary goes into his EPF every month – which is matched by the employer.

The EPF then matures on retirement, giving the employee a tax-free lumpsum (if he or she has been working with the company for over five years).

Back then, the maximum pensionable salary was Rs 5,000 per month – a figure later raised to Rs 6,500.

What’s the issue?

The EPS amendment of 22 August, 2014, had raised the pensionable salary cap to Rs 15,000 a month from Rs 6,500 a month.

It also allowed members along with their employers to contribute 8.33 per cent of their actual salaries (if it exceeded the cap) towards the EPS.

It gave all EPS members, as on 1 September, 2014, six months to opt for the amended scheme.

However, many members did not choose this option as they were simply unaware – hence missing a chance to increase their retirement corpus.

The amendment also required members to contribute an additional 1.16 per cent of their salary exceeding Rs 15,000 a month towards the pension fund.

Employees from both exempt and unexempt establishments have filed more than 54 writ petitions seeking the invalidation of the 2014 amendment, as per Indian Express.

 As per Indian Express, the Kerala High court in 2018 quashed the 2014 scheme.

The Delhi High Court in its 2019 verdict also echoed the Kerala High Court, while the Rajasthan High Court that same year expressed a similar opinion.

What did the court rule? What does it mean?

The court has now ruled that EPFO members can now contribute 8.33 per cent of their actual salaries rather than 8.33 per cent of the pensionable salary (capped at Rs 15,000 per month).

Simply put, this means members who opt to contribute 8.33 per cent of their actual salary will get a larger lumpsum on retirement.

The court has further given the option of pension on higher earnings to subscribers of exempted provident fund trusts.

The apex court also held that the EPFO cannot ask subscribers for an additional 1.16 per cent of contribution of salary for opting pension on higher earnings without amending the existing law.

“There was uncertainty regarding the validity of the post amendment scheme, which was quashed by the High Courts. Thus, all employees who did not exercise the option but are entitled to do so, but could not due to interpretation of the cut-off date, ought to be given certain adjustments,” the apex court said, as per Indian Express.

The apex court stated: “Time to exercise option under paragraph 11(4) of the scheme, under these circumstances, shall stand extended by a further period of four months. We are giving this direction in exercise of our jurisdiction under Article 142 of the Constitution of India.”

Paragraph 11 (4) of EPS-95 allows members to opt for pension on higher earnings.

The amendment in 2014 had also provided that these members have to contribute at the rate of 1.16 per cent on salary exceeding Rs 15,000 per month. For the amount up to Rs 15,000 basic wages, the contribution of 1.16 per cent towards EPS is provided by the central government.

“The requirement of the members to contribute at the rate of 1.16 per cent of their salary to the extent such salary exceeds Rs 15,000 per month as an additional contribution under the amended scheme is held to be ultra vires the provisions of the 1952 Act,” the Supreme Court held.

However, the apex court suspended operation of this part of its order for six months to enable the authorities to make adjustments in the scheme so that the additional contribution can be generated from some other legitimate source within the scope of the Act, which could include enhancing the rate of contribution of the employers.

For the six months or till such time any amendment is made, whichever is earlier, the employees’ contribution shall be as a stop gap measure and the said sum shall be adjustable on the basis of alteration to the scheme that may be made, it stated.

 Reactions to the ruling

Trade unions have demanded that the government call an extraordinary meeting of the central board of trustees of the retirement fund body EPFO for quick implementation of the apex court order.

Talking to PTI, general secretary, Hind Mazdoor Sabha, Harbhajan Singh Sidhu said, “The apex court has given relief to subscribers of the Employees’ Provident Fund Organisation (EPFO) to opt for pension on higher earnings. Now we demand from the government to immediately call a special meeting of Central Board of Trustees (CBT) headed by the Union Labour Minister to discuss the order in detail and implement the relief given to members.”

Another EPFO trustee and All India vice-president of Bharatiya Mazdoor Sangh (BMS) Sunkari Mallesham also demanded an extraordinary meeting of the CBT.

“There is a need to call an extraordinarily meeting of the CBT to discuss the order thoroughly and provide relief given to members,” Mallesham told PTI.

BMS activist and an EPFO trustee Prabhakar Banasure also demanded a meeting of CBT.

“My demand is that minimum pension should be Rs 5,000 per month. Also, pensioners should be covered by Aayushaman Bharat scheme,” he said.

The judgment, however, does not appear to be affecting employers or the industry at present as per the employers’ representatives.

KE Raghunathan, a CBT member representing employers, told PTI: “Supreme Court suggests that employers’ contribution to pension can be increased as a possible solution. This could be a cause of concern as employers’ burden may increase. This, anyway, would require amendment to the Act, if the government so decides. Even then there will be no additional liability on employer. Only inter-se allocation of contribution between PF and pension will change.”

Senior advocate Jayanth Muthuraj, who argued in favour of employees, said, “We can say this judgment broadly deals with three major points – all the employees who did not exercise the option for 2014 scheme but were entitled to do so were given a chance to opt for the scheme in four months’ time. Secondly, the court struck down a requirement for the employee to contribute 1.16 per cent of the salary, if their salary exceeds Rs 15,000 per month, and thirdly, employees who were not in service as on September 1, 2014 and had not opted for the scheme would not be entitled for the benefit of the judgment.” Muthuraj said that in his view and reading of the verdict the direction (v) of the judgment which disentitles the employees who retired prior to September 1, 2014 without exercising the option is contrary to RC Gupta verdict (2016 judgment) which has been approved by the top court.

Advocate Varinder Kumar Sharma, who argued on behalf of Pradeshik Cooperative Dairy Federation of Lucknow, said that the verdict is a mixed bag.

“In RC Gupta case of 2016, the top court has said that if the employee who has retired prior to September 1, 2014 without exercising the option then he is eligible for 2014 scheme as there is no cut-off date and if he returns all such amounts that he may have taken or withdrawn from the provident fund account. This was a big problem as a person who has retired in 2010 or 2012 and has taken all his retiral benefits was also seeking pension as per RC Gupta verdict,” he said.

Advocate PS Sudheer, who also appeared for the employers, said: “Employers will be benefited with the direction that people who have retired prior to September 1, 2014 without exercising the option under the 1995 scheme will not be entitled for 2014 scheme,” he said.

With inputs from agencies

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