All employees can opt for EPFO pension scheme: Supreme Court

The court uses its extraordinary powers under Article 142 to allow eligible employees who had not opted for enhanced EPFO pension coverage prior to the 2014 amendments to do so in 4 months

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The Supreme Court on Friday upheld the Employees’ Pension (Amendment) Scheme, 2014 of the Employees’ Provident Fund Organistion as “legal and valid” while reading down certain provisions.

Most important, the court used its extraordinary powers under Article 142 of the Constitution to allow eligible employees who had not opted for enhanced pension coverage prior to the 2014 amendments, to jointly do so with their employers within the next four months.

The court struck down a requirement in the 2014 amendments that employees who go beyond the salary threshold (of ₹15,000 per month) should contribute monthly to the pension scheme at the rate of 1.16% of their salary.

The requirement to contribute 1.16% of the salary to the extent that such salary exceeds ₹15,000 per month as an additional contribution made under the amendment scheme is held to be ultra vires to the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, a three-judge Bench led by Chief Justice U.U. Lalit held.

The court suspended the implementation of this part for six months.

“We suspend the operation of this part of our order for six months. We do so to enable the authorities to make adjustments in the scheme so that the additional contribution can be generated from other legitimate sources within the scope of the Act, which could include enhancing the rate of contribution of the employers,” the judgment said. The court held that the amendments to the pension scheme notified in August 2014 would apply to the employees of “exempted establishments” in the list of the EPFO, which number over 1,300 companies and entities.

The dispute primarily concerned the controversial amendments made to Clause 11 of the EPS-1995. The 51-page verdict, authored by Justice Aniruddha Bose, came in an appeal filed by the EPFO challenging the decisions of the Kerala, Rajasthan and Delhi High Courts quashing the 2014 amendments on “determination of pensionable salary” under the EPS of 1995.

Before the amendments were introduced, every employee, who became a member of the Employees Provident Fund Scheme of 1952 as on November 16, 1995, could avail the EPS. In the pre-amended version of EPS-1995, the maximum pensionable salary was ₹6,500. However, members whose salaries exceeded this cap could also opt, along with their employers, to contribute up to 8.33% of their actual salaries to the pension fund.

The 2014 amendments to the EPS, which included changes in Clause 11(3) and insertion of paragraph 11(4), raised the cap from ₹6,500 to ₹15,000. Paragraph 11(4) said only employees, who were existing EPS members as on September 1, 2014, could continue to contribute to the pension fund in accordance with their actual salaries. They were given a window of six months to opt for the new pension regime.

However, the court removed the cut-off date in the 2014 amendments. The court, in this regard, referred to the R.C. Gupta case, which had said that a “beneficial scheme” like EPS-1995 “ought not to be allowed to be defeated by reference to a cut-off date like September 1, 2014.”

It was also paragraph 11(4) which created the burden on employees to cough up 1.16% of their salary.

Again, the pensionable salary was an average of 12 months’ pay before the date of the employee’s exit from the EPS. The 2014 amendments extended the period of calculation of average pensionable salary from 12 months to 60 months. But on this, the court said “we do not find any flaw in altering the basis for computation of pensionable salary.”

The court held that employees who retired prior to September 1, 2014 without exercising any option would not be entitled to benefit of this judgment.