Good News: Pension of private sector employees to increase manifold as SC upholds Kerala HC order

EPFO.
Representational Image.

The Hush Post | 8:17 pm | Two-minute read |

Supreme Court has dismissed a special leave petition (SLP) filed by the EPFO against an order of the Kerala High Court. The Supreme Court’s verdict will benefit benefit crores of retiring employees of the private sector.

With this decision, the pension of the private sector employees will increase manifold. The Kerala High Court had asked the retirement fund body to give pension to all retiring employees on the basis of their full salary. Up till now, the EPFO had capped the figure on which contribution is calculated at a maximum of Rs 15,000 per month.

The apex court dismissed the EPFO’s petition saying it had no merit.

THE SCHEME

Employees Pension Scheme (EPS) was launched by the Union government in 1995. As per the scheme, all employees in the organised sector currently contribute 12% of their salary (basic salary+dearness allowance) to the EPF. The employer makes a matching contribution, of which 8.33% goes to the EPS, subject to a salary cap of Rs 15,000.

In 1996, the EPS Act was amended and the cap (Rs.6500 that time) was done away with. The members could raise the EPS contribution to 8.33% of their full salary (basic + DA) – provided the employee and employer had no objection. This raised the pension amount exponentially.

However, in September 2014, the EPFO again amended the scheme put the salary cap on contribution to 15,000. Besides, many significant changes were brought in.  To begin with, new employees having salary exceeding Rs 15,000 per month were not eligible to become members of the EPS.

The Kerala High Court set aside the 2014 amendment calling it arbitrary and unsustainable. It also reinstated the old system of calculating the pensionable salary as the average of the last one year’s monthly salary.

The Supreme Court judgment has brought much cheer to the salaried class. Employees who have begun working after September 1, 2014, will now be able to avail the benefit of pension on full salary.

With the old regime back, an employee earning Rs 50,000 per month with 33 years of service will now be eligible for a pension of Rs 25,000 per month. He used to get just Rs 5,180 earlier.  Similarly, an employee with 20 years of service with a monthly salary of Rs 1 lakh will bag a pension of Rs 28,571 per month instead of Rs 2,100.

 THE FORMULA

(Years of service + 2)/70 * last drawn salary

E.g. for service of 33 years with 50,000 last drawn salary, the pension would be:

(33 years + 2)/70 * 50000= 25,000 rupees.

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