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Labour regulations are generally concerned with the protective aspects of social security, encompassing laws and programmes that provide fallback mechanisms to help employees cope with the occasional crises that affect households. Social security regulations are crucial not only for the welfare of society, but also for the productivity of the workforce in any activity.
The most essential parts of labour rules include financial and social security protection. For everyone, financial security and financial freedom are critical. In India, retirement financial preparation is becoming increasingly important. There are several tax-advantaged investment options available. Employees’ pension scheme 1995 is an example of a programme that provides safety nets or fallback mechanisms to assist workers to cope with crises that hit households from time to time, such as illness, work injury, death, or old age.
OVERVIEW OF EMPLOYEES PENSION SCHEME, 1995
Employees’ Pension Scheme, 1995 not only improves benefits for families, but also offers members with a pension and other advantages. Within the restrictions of a sponsored scheme, this system provides full benefits for participants while also providing for numerous contingencies.
BENEFITS UNDER THE PROVISIONS OF EMPLOYEES’ PENSION SCHEME, 1995, TO THE MEMBERS AND THEIR FAMILIES.
From the time they begin withdrawing their pension, all qualified EPFO members can get pension benefits based on their age. The amount of the pension varies depending on the circumstances.
- Pension on Retirement at the Age of 58 years
When a member retires at the age of 58, he becomes eligible for pension payments. When he becomes 58, though, he must provide service for at least 10 years in order to be eligible for pension payments.” For withdrawing the monthly pension, an EPS Scheme Certificate is generated.
- Pension on leaving service before becoming eligible for Monthly Pension
If a member is unable to serve for ten years before reaching the age of 58, he may withdraw the entire amount by filling out ‘Form 10 C’ at the age of 58. It’s worth noting that he won’t be receiving monthly pension benefits after he retires.
- Total Disablement Pension during Service
Regardless of whether or whether he has served the pensionable service period, an EPFO member who becomes totally and permanently incapacitated is entitled to a monthly pension. To be eligible for the pension, his employer must deposit funds in his EPS account for at least one month.
From the date of permanent disability, the member is qualified for the monthly pension, which is payable for the rest of his life. The member may, however, be required to undergo a medical examination to determine whether or not he is unsuited for the work he was doing prior to becoming incapacitated.
- Pension for the Member’s Family in the Event of Death
In the following circumstances, a member’s family becomes eligible for pension benefits:
- In the event that the member dies while on the job and the employer has deposited funds in his EPS account for at least one month
- In the event that the member has completed 10 years of service and dies before reaching the age of 58
- In the event that the member dies after the monthly pension begins.
CHALLENGES POSED BY EMPLOYEES’ PENSION SCHEME
There are a few obstacles that have been presented after the implementation of EPS Scheme’95, just as there are varied benefits of employees’ pension schemes. The Employees’ Pension Scheme, 1995 has three primary challenges:
- A static pension is one that is not adjusted for inflation.
- Contributory wage has a statutory ceiling of Rs. 6500 per month.
- Given the current set of benefits, there is an ongoing actuarial deficit.
Because of the impacts of inflation, the amounts of benefit anticipated at the time of the Employees’ Pension Scheme’s implementation in 1995 have declined in actual terms with each passing year. The failure to adjust these benefits to inflation has resulted in a genuine pension reduction. Furthermore, the wage ceiling of Rs. 6500 per month, above which contributions can be made, is out of step with rising wage levels. As a result, the amount of pension benefit received by retirees is becoming more insufficient to meet their day-to-day demands. The actuarial deficit, on the other hand, continues to grow with each consecutive valuation, given the current rate of contribution and the benefits established in the scheme.
In addition to the fundamental difficulties outlined above, there are a number of demands from members and retirees connected to the Employees’ Pension Scheme, 1995, as well as various peripheral demands.
RECOMMENDATIONS OF THE PARLIAMENTARY STANDING COMMITTEE ON LABOUR ON THE EPFO
The EPFO Employees’ Pension Scheme, 1995, has also received recommendations from the Parliamentary Standing Committee on Labour.
The following are the demands/recommendations:
- Amount set aside for a minimum pension.
- The provisions of commutation and capital return have been restored.
- Regular declaration of pension relief, as was done after the first four valuations
- An increase in the employer’s and government’s contributions to EPS’95
- Payment of a pension before reaching the age of 50
- DA to retirees based on price index
- Increase in the wage ceiling by seven percent.
- Increasing the retirement age from 58 to 60 years
- Pension equal to that of the federal government.
Other demands include: providing a membership option to those retiring before April 1, 1993; granting a lump sum upon the death of the pensioner; the Central/State Government providing unused agricultural land free to pensioners who do not own houses; free medical assistance to EPF Pensioners, and so on.
EMPLOYEES’ PENSION SCHEME AMENDMENT 2014
The 2014 Amendment increased the maximum salary cap to INR 15,000 per month from the previous INR 6,500 per month, thereby excluding all new members earning more than this amount from the pension system entirely, with the 8.33 percent employer contribution going into the EPF account instead. Furthermore, it only provided existing members a six-month window to decide whether or not they wanted to make uncapped pension contributions, that is, contributions to the Pension Scheme at their uncapped wage without being limited to INR 15,000. If the employee earning INR 100,000 per month were a new PF member, he or she would be completely excluded from the pension i.e. became a member after the 2014 Amendment. Existing members’ pension contributions would be capped at INR 1,250 per month (i.e. 8.33 percent of INR 15,000), unless they chose to continue making uncapped payments within the six-month window. As a result, the pension payable to employees was significantly cut, prompting petitions to be filed in opposition to the revision.
P. Sasikumar and Ors v Union of India and Ors.(2019)
The monthly cap on pensionable salary, as you can see from the example above, results in a relatively low pension payout from the scheme. In response to a petition, the Kerala High Court ruled down the September 2014 EPS modifications in October 2018. The Supreme Court upheld this decision in April of this year.
The petitioners in Sasikumar were employees from various establishments who had moved the Kerala High Court to question the validity of the EPS Amendment on the argument that it had put them in a disadvantage by requiring them to contribute to the pension fund based on their actual salary. It was also maintained that the cap of INR 15,000 (Indian Rupees 15,000) was unreasonable and had little bearing on actual pay paid to employees across the country. The petitioners further claimed that the EPS Amendment’s cut-off date for creating a new option to contribute on the basis of a higher wage was incompatible with the requirements of the Employees’ Provident Funds and Miscellaneous Provisions Act 1952 (EPF Act) and the schemes designed thereunder. They cited paragraph 26(6) of the EPF Scheme, which does not provide a deadline for making a similar contribution to an employee’s provident fund.
The Kerala High Court ruled in favour of the petitioners, stating that nowhere in the EPF Act does it allow for an additional rate of interest to be charged for making contributions based on the employees’ actual wage. No further restriction could be put on employees’ right to make contributions in excess of the wage ceiling because they have the opportunity to do so. The respondents’ allegation of depletion of the pension fund was unsustainable, the Kerala High Court added since the respondents failed to adduce any proof in this regard. On the contrary, the contributions made by India’s growing workforce based on their actual earnings resulted in the pension fund growing. The requirement of a cut-off date for bestowing benefits under the EPS Scheme was also found to be unconstitutional, because such a requirement would result in employees being classified based on whether they retired before or after the stipulated period.
As a result of the foregoing, the Kerala High Court struck down the EPS Amendment, as well as any subsequent orders and procedures issued by the provident fund authorities as a result of the EPS Amendment.
Employees Provident Fund Organisation v Sunil Kumar and Ors. (2019)
The Supreme Court of India (Supreme Court) dismissed a special leave petition filed by the Employees Provident Fund Organisation (EPFO) against the Kerala High Court’s judgement in P. Sasikumar and Ors v Union of India and Ors, (2019) ILLJ 494 Ker (Sasikumar), holding that the petition found no merit. The Employees’ Pension (Amendment) Scheme, 2014 (EPS Amendment), which, among other things, capped the maximum pensionable salary at INR 15,000 (Indian Rupees Fifteen Thousand) per month and imposed additional contribution obligations on salaries above that ceiling, was struck down by the Kerala High Court.
The Supreme Court has paved the way for a higher pension for all private sector employees by dismissing the special leave case filed by EPFO against the Kerala High Court Judgement. The EPFO has been ordered by the Supreme Court to offer pensions to private sector workers in proportion to their entire salary. Previously, EPFO provided a pension based on the employee’s pay, with a maximum cap of Rs. 15,000 per year. Now that the Rs. 15,000 cap has been lifted, EPS contributions will be calculated at 8.33 percent of the employee’s actual wage.
Based on the foregoing study, it is clear that the Employees’ Pension Scheme, 1995, has had a significant impact on employees, despite facing numerous hurdles from the outset. Over time, the advantages have surpassed the drawbacks.
Subscribers are projected to be impacted in three ways as a result of the SC’s decision. One, employees who joined the company after September 2014 and are now only contributing to the EPF may be eligible for EPS benefits previously unavailable to them. Two, if the INR 15,000 salary cap on EPS contributions and pensionable salary is removed, employees may be eligible to increase their pension by asking their employer to contribute more to the EPS rather than the EPF. Three, they may be eligible for a greater pension because the pensionable salary will be based on the average pay of the previous 12 months rather than the previous 60 months. Furthermore, the future breadth of this programme has the potential to be extremely beneficial to employees. Every month, the minimum pension amount is expected to rise from Rs. 1000 to 2000. However, the increase in pension is projected to come at the expense of the employee’s net EPF corpus. More than 60 lakh people are members of the Employees’ Pension Scheme, 1995, and more than 40 lakh of them receive a monthly pension of fewer than 1500 rupees. It will benefit EPFO subscribers and cost the government an additional 3000 crores. It is advised that the quantity and quality of data collected on EPS members, pensioners, and their families be greatly enhanced, and that data collecting is prioritized. While all of this is wonderful news for employees, they shouldn’t get their hopes up until the eggs hatch. A sufficient amount of data will ensure that the pension fund’s valuation displays a true and correct image while minimizing the number of assumptions as much as feasible.
Author: Anuja Saraswat – a student of B.A.LL.B (Hons.) from NMIMS Kirit P. Mehta School of Law (Mumbai), in case of any queries please contact/write back to us via email firstname.lastname@example.org or contact us at Khurana & Khurana, Advocates and IP Attorneys.