Can you also get a manifold hike in lifetime pension from EPFO? Find out

economictimes.indiatimes.com/wealth/invest/can-you-also-get-a-manifold-hike-in-lifetime-pension-from-epfo-find-out/articleshow/61791855.cms

Prabhakar Sinha If retired government employees celebrated after a 25-30% hike in pension following the Sixth Pay Commission, imagine what Praveen Kohli would be doing right now. The pension of this retired general manager of the Haryana Tourism Corporation has risen 1,200%— from Rs 2,372 to Rs 30,592 per month. Using a Supreme Court judgement, Kohli had approached the EPFO for revision of his pension under the Employees’ Pension Scheme (EPS).

Though only a small portion of the employer’s contribution goes into EPS, the petitioners pointed to a 1996 amendment in the EPS Act which allowed members to raise the EPS contribution to 8.33% of the full salary (basic salary + dearness allowance) without any cap. This would have pushed up their pension significantly. After a lengthy legal battle, they won the case in the Supreme Court in October 2016.

WHAT IS EPS AND HOW YOU CAN HIKE IT
• Under EPF rules, an employer has to put 12% of the basic salary of an employee into the EPF.
• Out of this amount, 8.33% goes into the EPS.
• The current salary cap on EPF is Rs 15,000 a month. So, the maximum contribution to EPS is Rs 1,250 a month.
• A 1996 amendment in the EPS Act gives employees the option to raise pension contribution to 8.33% of the salary (basic + DA).
• To hike the contribution to EPS, one has to apply to the EPFO along with a consent letter from the employer.
• Supreme Court ruling makes it mandatory for EPFO to allow higher contribution to EPS. Even retired employees can opt for this.
• After a few years, EPFO even stopped accepting requests for raising the contribution to the EPS.
• Not many opted for this, preferring instead the maximum amount from employer’s contribution going into their EPF.

HOW IS YOUR PENSION CALCULATED?

Not attractive with capping
If the contribution and the pension are capped, the EPS is not a very good proposition for the subscriber. Suppose a person joined the scheme in 1996 when his basic salary was Rs 6,000 and got an average increment of 8%. By the time he retires after 33 years, his contribution to the EPS would be worth Rs 12.93 lakh. The calculation is based on the returns offered by the EPF since 1996 and assume 8.5% returns in future.

However, he would get only Rs 5,182 as monthly pension after retirement. If he received pension for 25 years in retirement, his returns from the EPS would be barely 1.52% per year.

On the other hand, if the employee contributes 8.33% of the full salary and gets pension on that basis, the returns from the EPS would be significantly higher at 11-12%.

HOW HIGH CAN YOUR PENSION GO
What would be your pension if you started with a basic salary of Rs 6,000 in 1996.

Till a few weeks back, most employees covered by the EPF were not aware that they were also entitled to pension for life after they retired. The few who were aware, only knew that the EPS will give them a meagre pension of Rs 2,000-3,500 per month. Observers fear the implementation of the Supreme Court order will open the floodgates for subscribers wanting to hike their contribution to get a high pension.

WHAT ELSE DOES EPS OFFER
The Employees’ Pension Scheme offers the following benefits to employees covered under the Employees’ Provident Fund.
1. Pension for life to member and spouse
Pension starts at the age of 58 and is based on the number of years of service and the basic salary.
2. Pension to widow
If member dies during service, his widow will get his pension for life or till she remarries. Two children will get additional sum equal to 25% of the pension.
3. Pension for orphans
If there is no widow, 2 children of the deceased will receive 75% of the pension till the age of 25. if more than 2 children, the benefit will continue till youngest is over 25.
4. Disability benefit
If a member is permanently and totally disabled during service, he will get full pension for life.
5. Early pension
A member can opt for early pension after 50, but he will have to take a cut of 4% for every year before 58.

Exempt organisations kept out
The EPFO has already expressed reluctance to give pension on full salary to employees of exempt companies that manage their provident funds independently. Nearly 80 lakh of the estimated five crore members of the EPS work in exempt organisations.

Interestingly, two of the 12 petitioners who won the case in the Supreme Court are from exempt companies. Given that EPFO has accepted to give a higher pension to these members, other members of exempt organisations should also get the pension on full salary. It’s likely that members of private trusts or the trusts themselves will move court on the issue.

EPFO officials point out the procedural hurdles in allowing higher pension to employees of exempt organisations. If the contribution to the EPS account is increased with retrospective effect to give pension on full salary, a commensurate amount needs to be transferred from the individual’s EPF account to EPS account. Not only this, the interest earned by the money for the period it remained with EPF should also go to EPS.

However, the EPFO says this adjustment is possible only if both the EPF and EPS fund are managed by the EPFO trust. EPS collections are managed by the EPFO trust, but exempt organisations manage their employees’ EPF on their own. “If the Provident Fund of an organisation is not with the EPFO Trust, it is not possible to transfer the money from the individual’s EPF account to the EPS,” says Central Provident Fund Commissioner V.P. Joy.

No longer available
Not everyone is eligible to make a higher contribution. In August 2014, the government amended the EPS Act of 1995 and deleted the provision that allowed employees to make a higher contribution and draw pension for the full salary. The amendment enhanced the ceiling on the salary from Rs 6,500 to Rs 15,000 per month. Anyone who joined the EPF after 1 September 2014 with a basic salary of over Rs 15,000 per month will not be covered by the EPS.

Fight for higher pension
Life has changed for Praveen Kohli after his EPS pension rose from Rs 2,372 to Rs 30,592 per month. But it has not been an easy journey. Kohli followed the Supreme Court verdict and completed the formalities to get a higher pension.

It all began in 2005, when following media reports, several private EPF fund trustees and employees approached EPFO with the demand to remove ceiling on their EPS contribution and raise it to their total salary. EPFO rejected the demand claiming that the response should have come within six months of the 1996 amendment. Cases were filed against EPFO in various high courts. By 2016 all except one high court ruled against EPFO stating that the six-month deadline was arbitrary and the employees must be allowed to raise their pension contribution whenever they wish to. The case went to Supreme Court which, in two separate rulings in 2016, ruled in favour of employees’ right to raise their contributions to pension fund without imposing any cut-off date for eligibility.

Lengthy battle
It took another year for the EPFO to implement the court order following a strong fight put up by employees like Kohli. Finally from November 2017, Kohli started getting a higher pension.

To raise his monthly pension from Rs 2,372 to Rs 30,592 Kohli had to pay Rs 15.37 lakh as the difference between EPS contribution he had made while in service and the contribution he would have made if he was allowed to raise it to his full salary. But he also got Rs 13.23 lakh as arrears for the higher pension that he was entitled to for four years spent in retirement before November 2017. So, by paying Rs 2.14 lakh extra, Kohli was able to raise his lifelong pension by nearly 13 times. In case he passes away before his wife, she will get 50% of Kohli’s last drawn pension till she is alive.

The judgment opened the floodgates and the EPFO was inundated with requests from employees and pensioners to allow them to contribute to EPS at their full salary. The number of cases filed at various courts to get the judgment implemented soared.

Finally, the EPFO moved a proposal allowing all employees and retirees to contribute to EPS on the basis of their full salary. After receiving the nod from the government on 16 March to implement the Supreme Court order, the EPFO told all regional offices to accept all such requests with retrospective effect.

In Pic : Praveen Kohli with his wife

Who is eligible
Are all the estimated five crore members of EPFO now eligible for higher pension if they opt to raise their EPS contribution? Yes, all those who joined EPFO before 1 September 2014—the date on which the EPS imposed the Rs 15,000 salary cap—can contribute on their full salary to EPS. They can submit applications to their company and the EPFO and get up to half of their last average monthly salary as pension. Those who have joined EPFO after 1 September 2014 and have a salary above Rs 15,000 are not eligible for pension while those starting with salaries lower than Rs 15,000 can contribute to EPS but the cap of Rs 15,000 will kick in when their salary rises.

The September 2014 amendment has also changed the way EPS pension will be calculated. Instead of the average of past 12 months salary, the average of the past five years will be taken into acocunt. Some people try to get a higher pension by getting a higher basic salary in the final year before retirement. The new rule would ensure that there is no disproportionately large payout to the susbscriber.