Extracts from the Pages 147-162 of the Agenda of 224th Meeting of CBT held on 21.02.2019. Please read the complete document with special emphasis to Point Nos. 7 & 12.
NOTE ON EMPLOYEES’ PENSION SCHEME, 1995
1. Vide GSR 748(E) dated 16.11.1995 published in the Gazette of India Extra, Pt.II, Sec. 3(i), dated 16th November, 1995 the Employees’ Pension Scheme, 1995 was notified for implementation, substituting the erstwhile Employees Family Pension Scheme, 1971.
2. The option to become the member of this Scheme was given w.e.f. 01.04.1993 itself to the members who left membership or died between 01.04.1993 and 15.11.1995.
3. In the Employees’ Pension Scheme, provision was made for diversion of 8.33% of wage out of the Employer share of P.F. contribution along with the contribution of 1.16% of wage from Government to the EPS account. The balance amount is required to be continued in the account of the P.F. member as employer share of contribution.
4. Different stakeholders including the employees of big establishments, Public Sector undertakings, various Trade Unions and Political Parties opposed this Scheme. Many Establishments, Employees Associations and others approached various High Courts against implementation of the Employees’ Pension Scheme, 1995.
5. Several rounds of negotiations were initiated by the Government for acceptance of Employees’ Pension Scheme by the opposing parties. In order to have wider acceptance by various shareholders, following provisions were added in the Employees’ Pension Scheme, 1995 on 28th February 1996 as major amendments within three months of introduction of the main scheme: –
- Option for Commutation
- Option for Return of Capital
- Option to contribute on higher wages exceeding the statutory limit.
These were perhaps introduced to make EPS, 1995 more attractive to a wider group of employees without detailed financial analysis regarding sustainability of the Pension Fund on long term basis.
6. CONTRIBUTION TO PROVIDENT FUND ON HIGHER WAGE
The provision for contribution on higher wages is provided in Para 26(6) of Employees Provident Fund Scheme 1952, which reads as following.
“Notwithstanding anything contained in this paragraph an officer not below rank of an Assistant Provident Fund Commissioner may, on the joint request in writing, of any employee of a factory or the establishment to which this Scheme applies and his employer, enroll such employee as a member or allow him to contribute on more than (rupees six thousand and five hundred) of his pay per month if he is already a member of the Fund and thereupon such employee shall be entitled to the benefits and shall be subject to the conditions of the Fund, provided that the employer gives an undertaking in writing that he shall pay the administrative charges payable and shall comply with all statutory provisions in respect of such employee.”
7. CONTRIBUTION TO PENSION FUND ON HIGHER WAGE
The erstwhile Para 11(3) (deleted through amendment dated 22.08.2014) of Employees’ Pension Scheme, 1995 provided the clause for considering higher wage as pensionable salary under Employees’ Pension Scheme, 1995 and is reproduced below:-
“The maximum pensionable salary shall be limited to [Rupees six thousand and five hundred/Rs. 6500/-] per month. Provided that if at the option of the employers and employee, contribution paid on salary exceeding [Rupees six thousand and five hundred/Rs. 6500/- ] per month from the date of commencement of this Scheme or from the date salary exceeds [Rupees six thousand and five hundred/Rs. 6500/- ] whichever is later, and 8.33 percent Share of the employers thereof is remitted into the Pension Fund; pensionable salary shall be based on such higher salary.”
This provision for contributing on higher wages in Pension Fund continued from 16.11.1995 to 31.08.2014in the EPS, 1995 as a legal provision. As such provision under this para 11(3) of EPS, 1995 allowed employer and employee to pay contribution to Pension Fund on higher wage and get the pension on such higher wage on retirement or otherwise, upto 31.08.2014.
8. After introduction of new benevolent provisions the Bill on Employees’ Pension Scheme, 1995 was passed by the Parliament also.
9. In the meantime, various petitions against introduction of Employees’ Pension Scheme, 1995 were filed in different High Courts and all cases were transferred to Hon’ble Supreme Court through Transfer Petition. The Hon’ble Supreme Court in the year 2003 decided the pending matters by upholding the validity of the Employees’ Pension Scheme, 1995.
10. Since the matter was pending in Hon’ble Supreme Court up to 2003 and some interim orders were also passed during this period, many of the Employees who had not opted to become members of Pension Scheme were given opportunity to become members of the Pension Scheme and also to contribute on higher wages as per the provisions of Para 11(3) of Employees’ Pension Scheme, 1995 through detailed instructions dated 05.02.2004 for payment of contribution.
11. Subsequently, considering the financial viability of the Employees’ Pension Scheme, 1995 based on various actuarial reports till then, the opportunity for giving option to contribute on higher wages on becoming member of the Employees’ Pension Scheme was stopped in the year 2004 vide circular No.Pen 4(38)/96/WB/59867 dated 01.12.2004. A clarificatory circular discontinuing acceptance of contributions on higher wage in Pension Fund was also issued vide communication dated 22.11.2006.
12. Although administrative instructions were issued disallowing option to contribute on higher wages (wages exceeding ceiling amount), this provision for contribution on higher wage in scheme was not amended till the year 2014. So legally, the provision for contribution on higher wages continued from 16.11.1995 to 31.08.2014.
13. The provisions relating to option for commutation and option for return of capital were deleted with effect from 26.09.2008 by GSR.688(E) dated 26.09.2008.
14. The scheme was amended in 2014 by omitting the proviso to clause 11 (3) by G.S.R. No.609 (E), dated 22.08.2014 (with effect from 01.09.2014).
15. During the period 2004 to 2014 many cases were filed in various forums and High Courts, praying for payment of pension on higher wages by allowing to contribute on higher wages under the pension scheme.
16. On being aggrieved by the orders of the High Courts, EPFO appealed to the Hon’ble Supreme Court wherein the department filed 8 SLPs in series against the orders of Hon’ble Kerala High Court. The said SLPs were dismissed by the Hon’ble Supreme Court vide order dated 31.03.2016 (7 – SLPs) and dated 12.07.2016 (1-SLP) by bunching the SLPs. Some of the Writ Petitions filed against the stand taken by EPFO in this matter were as old as 2007, that is, immediately after issue of circulars for stoppage of option for contribution on higher wages.
Please read the complete Agenda