* Allows govt to rethink how to garner more pension funds, including asking employer to pay more
New Delhi, Nov 6.
In a ruling delivered on Friday, the Supreme Court upheld an Aug, 2014, notification amending the government’s 1995 employees’ pension scheme, as “legal and valid” but stayed its order for six months to allow the government to give necessary legislative teeth to the changes introduced via an executive order.
The government will also get a window to examine how to best increase the pension fund base, including asking employers to cough up more for the pension fund. Till then, the court said, the scheme will continue as it is.
Employees currently pay 12 per cent of their basic salaries as a contribution to the EPF. The employer makes a matching contribution. An 8.33 per cent of the employer’s contribution is made to the pension fund. The rest stays with the Employees Provident Fund Organisation (EPFO).
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, originally did not have a pension scheme. Section 6A, providing for pension, was introduced by the Employees’ Pension Scheme, 1995, by way of an amendment in 1995.
In 1995, the maximum pensionable salary was Rs 5000 and this sum was enhanced to Rs 6,500. Pensionable salary was raised to Rs 15,000 by a notification dated 22nd August, 2014.
It was defined as the average monthly pay drawn during contributory period of service in 60 months preceding the date of exit from the pension fund.
It was to be determined on a pro-rata basis for pensionable service up to the 1st September, 2014, subject to maximum of Rs 6,500 per month, and thereafter at Rs 15,000 per month.
The original provision stipulated computation of pensionable salary on the basis of monthly salary drawn over 12 months prior to their exit.
This notification also brought certain other modifications restricting coverage of the scheme. These were challenged in the Kerala, Delhi and Rajasthan High Courts. The Aug 2014 notification was struck down by the Kerala High Court on 12th October, 2018.
The Delhi HC on 22nd May, 2019, quashed a May 31, 2017, circular issued by the PF authorities, precluding exempted establishments from benefits of higher pension. The Rajasthan High court also followed suit.
The EPFO filed appeals in the top court against these judgements.
Maximum salary cap for pension upheld
Allowing these appeals on Friday, a bench led by outgoing Chief Justice of India U.U. Lalit upheld a cap on the maximum pensionable salary which now stands at Rs 15000 and the mode of determining it. Those opposing this cap had argued that this would whittle down their pension rather than benefit them. Incidentally, the Kerala high Court had struck it down.
Since the pension scheme is intended to provide succour to the retired employees, the object would be defeated by capping the salary, the High Court had said.
Additional payment of 1.16 per cent, if pensionable salary exceeds Rs 15,000, struck down
The top court, however, struck down as illegal an additional payment of 1.16 per cent towards pension from those whose salaries exceeded the maximum pensionable salary of Rs 15,000.
This, the top court said, was illegal as there was nothing in the original Act to justify this.
Employees can keep paying it for now
Employees can keep paying this for the time being till the government takes a call on its future, a three-judge bench said. The central government need not make a similar payment of 1.16 per cent for mandatory members in absence of a law, it said.
Government can overhaul scheme again; ask employers to pay more
The ruling gives the government an option to overhaul the scheme again.
“It would be for the administrators to readjust the contribution pattern within the scope of the statute and one possible solution could be to raise the level of employer’s contribution in the scheme.”
“We shall, however, suspend the operation of this part of our judgement for six months so that the legislature may consider the necessity of bringing appropriate legislative amendments on this count.” For this period, the scheme as it stands shall continue, the court said.
Till such time, if no such legislative exercise is undertaken, the duty to contribute 1.16 per cent of the salary shall apply on option members as well.
This contribution shall be adjusted depending on any amendment that may be brought. For six months, however, the opting employees shall make payment of 1.16 per cent contribution as a stopgap measure.
In the event no amendment is made, the fund administrators will have to operate the pension fund for the option members from the existing corpus.
Higher pension scheme will apply to all establishments
The court clarified that the scheme applies to all establishments, exempted or unexempted, and those who could not join the scheme would get another chance to do so. They could join within another 4 months.
Those with salary of less than Rs 15000 (including basic wages, dearness allowance, and retaining allowance, if any, of the concerned employees, as specified in the scheme) were compulsorily enrolled for the scheme.
Those with more salary had the option to enroll with additional payment. The EPFO had claimed that this higher pension was a financial drain as it led to the higher salary earners getting disproportionate pensions and depleted the fund.
The Kerala high Court rejected this as there was no material to support this. On the contrary, a staggering unclaimed amount of Rs 32,000 crores was lying in various inoperative PF accounts across the country, it noted.
The top court said that it was “alive to the concern expressed by the High Court as regards the impact on the economic stability of retired employees suddenly being deprived of pension”.
“But, based on such macro-level disparities, we do not think in exercise of judicial power we can require the state to operate a pension scheme in a particular manner. These factors would be for policy-makers to examine and prescribe. We cannot issue directions to the Central government to work out a statutory scheme in a particular fashion.”
Pension formula
The quantum of pension was to be fixed as per a formula i.e., monthly member’s pension = pensionable salary multiplied by pensionable service divided by 70. The formula contemplates superannuation pension for a member after service of 10 years and retiring on attaining 58 years.
Employees who retired without exercising option will not benefit from ruling
The employees, who retired prior to 1st September, 2014, without exercising any option under paragraph 11(3) of the pre-amendment scheme, would not get benefit of this ruling, court said.
The employees, who have retired before 1st September, 2014, but exercised the option under paragraph 11(3) of the scheme shall be, the bench, also comprising Justices Aniruddha Bose and Sudhanshu Dhulia, said.
