How you can get a higher pension from EPFO post SC ruling

BCCL
EPS pension is very low because EPFO capped the salary used for computation of pension at Rs 15,000 per month.

Highlights

  • EPS pension is very low because EPFO capped the salary used for computation of pension at Rs 15,000 per month.
  • It also capped the contribution to the EPS. Instead of 8.33% of the employer’s contribution, it was Rs 15,000 per year.
  • Employees covered by EPF will now be eligible for pension as per their full last drawn salaries.
On April 1, the Supreme Court of India upheld the Kerala High Court verdict on monthly pension from the Employees’ Pension Scheme 95 (EPS 95). The High Court had scrapped an August 2014 notification by the Employees’ Provident Fund Organisation (EPFO) and asked EPFO to give full pension to subscribers of the EPS.

But this does not mean that EPF subscribers are in for a big windfall. They will have to forego a significant chunk of their provident fund balance if they opt for higher pension. Here is what this means for you: Under Employee’s Provident Fund rules, a portion of the employer’s contribution to the EPF is put in the EPS. The scheme gives pension based on the number of years put in by the employee and his last drawn salary.

Monthly pension = Number of years multiplied by last drawn salary divided by 70.


But EPS pension is very low because EPFO capped the salary used for computation of pension at Rs 15,000 per month. It also capped the contribution to the EPS. Instead of 8.33% of the employer’s contribution, it was Rs 15,000 per year.

Employees covered by EPF will now be eligible for pension as per their full last drawn salaries. If an individual’s salary (basic + DA) was Rs 10,000 per month in 1999-2000 and rose 10% every year, his salary would have reached Rs 61,159 today.

EPS

The cap of Rs 15,000 on the basic salary was removed by the Kerala High Court. With the Supreme Court dismissing the petitions challenging the Kerala HC verdict, subscribers will be eligible to get pension based on their actual basic plus DA.

The individual in the example would get pension based on Rs 61,159 and not on Rs 15,000. But to get this higher pension, he will have to deposit more in the EPS to make up for the shortfall in the previous years.

Employees desiring a higher pension will have to divert this amount from their EPF corpus to the EPS. In the example, this additional contribution for the last 20 years will be to the tune of Rs 4 lakh. Since there is an interest component also, the real impact would be close to Rs 8.1 lakh.

But if he agrees to shift that money to the EPS, he will be eligible for a monthly pension of Rs 17,474. This is 300% more than the Rs 4,285 he would have got under the existing rules.

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How to boost your pension
  • An employer puts 12% of the employee’s salary in the Provident Fund. Of this 8.33% goes into EPS. But EPFO capped this contribution, which kept the pension low.
  • If an individual’s salary (basic + DA) was Rs 10,000 per month in 1999-2000 and rose by 10% every year, his salary would be Rs 61,159 today.
  • If he retires in 2019 and there is no cap on the contribution to EPS, the monthly pension would be Rs 17,474 instead of Rs 4,285.
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