THE SUPREME COURT ORDER ON PF PENSIONS
1. Context
The Supreme court (SC) upheld the Employees' Pension (Amendment) Scheme, 2014 of the Employees' Provident Fund Organisation (EPFO) as "legal and valid".
2. Employees' Provident Fund(EPF) Scheme
- EPF is a mandatory saving scheme under the Employees' Provident Funds and Miscellaneous Provisions Act, of 1952. It is managed under the aegis of the Employees' Provident Fund Organisation (EPFO).
- It covers every establishment in which 20 or more persons are employed (and certain other establishments which may be notified by the Central Government even if they employ less than 20 persons each).
- The employee has to pay a certain contribution towards the provident fund and the same amount is paid by the employer on a monthly basis. At the end of retirement or during the service (Under some circumstances), the employee gets the lump sum amount including the interest on PF contributed which gets accrued.
- The Central Board of Trustees, which is a key decision-making body for EPFO, takes a call on the interest rates that have to be provided on the provident fund deposits, every year.
- Once CBT decides on an interest rate on EPF deposits for a fiscal year, it is sent to the Ministry of Finance for concurrence. EPFO provides a rate of interest only after it is ratified by the government through the finance ministry.
- In 2021, the interest rate on the deposits was set at 8.5% and the rates for the current financial year will depend on the income projections for the year.
3. EPFO and EPS:
All organized sector employees in India who are enrolled with the Employees Provident Fund Organisation (EPFO) automatically become members of the Employees' Pension Scheme (EPS) as well.
Once you enroll in the EPF, your employer deducts 12% of your basic pay plus dearness allowance every month towards your retirement corpus, with your employer making a matching contribution.
4. EPS (Amendment) Scheme, 2014:
- Through the EPS Amendment which became effective on 1 September 2014, the conditions of membership in the EPS Scheme underwent a change.
- Through the amendment, the EPS scheme was now applicable to such employees who on or after 16 November 1995 became a member of the EPS Scheme and whose monthly salary on the date of joining was less than or equal to INR 15,000. In the original scheme, introduced in 1995, this salary limit was INR 6,500.
- Further, the employees were required to contribute at the rate of 1.16% of the salary exceeding INR 15,000 as an additional contribution to the contributions payable by them under the EPF Scheme.
- The maximum pensionable salary was set at INR 15,000 per month.
4.1 The Sasikumar Case (2014):
- The petitioners in the Sasikumar case were employees working in different establishments and had approached the Kerela High Court.
- The Petitioners challenged the validity of the EPS Amendment on the ground that the same had placed them in an adverse position by making it onerous for them if they contribute towards the pension fund based on their actual salary.
- It was also argued that the cap of INR 15,000 was unrealistic and had no relation to the actual salaries drawn by employees across the country.
- The Kerela High Court held in the petitioners' favor, observing that nowhere in the EPF Act does it allow an additional rate of interest to be imposed for making contributions based on the actual salary of the employees.
- In view of the above, the Kerela High Court set aside the EPS Amendment along with all consequential orders and proceedings issued by the provident fund authorities based on the EPS Amendment.
5. Supreme court's Judgement (November 2022):
- The EPFO had appealed against the Kerela High Court's judgment of quashing the Employees' Pension (Amendment) Scheme, 2014.
- A three-judge bench of the Supreme Court agreed with the changes brought in by the amendment and said "we do not find any flaw in altering the basis of computation of pensionable salary".
- The court said the amendments to the scheme shall apply to employees of exempted establishments as they do to the employees of regular establishments. There are about 1,300 companies on the list of the EPFOs (Employees' Provident Fund Organisation) exempted establishments.
- However, the court held the amendment requiring members to contribute an additional 1.16 percent of their salary exceeding Rs 15,000 a month as ultra vires the provision of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952.
For Prelims & Mains
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For Prelims: Employees' Provident Fund Organisation (EPFO), EPS (Amendment) Scheme, 2014, The Sasikumar Case (2014)
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Source: The Hindu
