By admin April 2, 2019 11:07

The Big Picture – EPF Redefined  

An essential component of savings and pensions in Indian middle class and working class gets redefined after recent orders of Kerala High Court and after the confirmation by a Supreme Court.   Earlier this week the Supreme Court dismissed a plea filed against a Kerala High Court order that had asked Employees Provident Fund Organisation to provide pension to all retiring employees rather than capping the figure to Rs 15,000 per month. In effect, all retiring employees will now get pension on their full salary instead of the Rs 15,000 cap.   In September 2018, a division Bench of the High Court of Kerala had nullified the amendments made to the Employees’ Pension Scheme in 2014 after a detailed hearing upon as many as 507 petitions filed by various organisations and individuals challenging the Employees’ Pension (Amendment) Scheme of 2014.   According to the new rules, introduced in the year 2014, new employees who earned more than the capped wages that means Rs 15,000, would not be eligible for EPS.   The bench comprising CJI Ranjan Gogoi, Justice Deepak Gupta and Justice Sanjiv Khanna dismissed the plea filed by EPFO saying that it finds no merit in the special leave petition and hence, restored the orders passed by the Kerala High Court.

What is EPF?

  • The Employees Provident Fund and Miscellaneous Provisions Act, 1952 empowered the Central government to frame the provident fund scheme initially.
  • Thereafter, the employees pension scheme and employees deposit link insurance scheme were also added in the Act which were framed by the Central government and implemented by the employees provident fund organisation.
  • In 1995, the government promulgated an ordinance for implementation of employees pension scheme which inserted an amendment to the Act by inserting 6A in the employees provident fund and Miscellaneous Provisions Act, 1952.
  • By virtue of the provision of section 6A, the central government was empowered to frame a pension scheme and it was specifically mentioned that out of the employers contribution, 8.33% will be diverted to the pension fund.
  • The pension scheme was thus framed and it was applicable to the employees having basic wages upto Rs. 6500. Thereafter the wages were increased to Rs. 15000.
  • In September 2014, an amendment was made in the employees pension scheme wherein certain changes were made in the pension scheme and a cap was put on the employees to draw the pension benefits upto Rs. 15000.
  • It was also stated in the amendment that if the employees drawing salary more than Rs 15000 wanted to become a part of the pension scheme, the contribution made earlier by the central government which was 1.16% would have to be borne by the employees.
  • The Kerala HC nullified the notification issued by the government which has amended the employees pension scheme. The SC also reaffirmed the order of the Kerala HC after a detailed analysis of the scheme.


  • The Employees Provident fund scheme is mandatory for employees drawing a basic wage of Rs. 15000 per month.
  • If they draw a salary more than that and want to be a part of the EPF, then a joint representation has to be made to the Assistant Provident Fund Commissioner by the employee and the employer as both make a contribution of 12% each.
  • 8.33% of the 12% made by the employer goes to the pension fund and 3.67% goes to EPF.
  • There are many organisations which are exempted from this provision on the guidelines of the EPFO.

The Case

  • The petition given by the EPFO was kept aside by the Kerala HC.
  • The employees and the employers were making an equal contribution without permission from the Assistant Provident Fund Commissioner and so was not recorded anywhere.
  • The basic problem was subscribing to the EPF. The Kerala HC held that if the employer did not make a matching contribution to that of the employee, the scheme would not be accepted.

Principles underlined by the Supreme Court

Two principles were underlines by the Supreme Court while giving the judgement

  1. If the employer and the employee enter into a contract to contribute to the scheme with the permission of the EPFO, then their pensions cannot be capped.

The employees, prior to 2014, when the law was amended, will enjoy the benefit.

  1. There are companies which allow their EPFO to managed by trusts. The 2014 order, according to the SC, would be applicable to those companies which maintain their EPFO accounts through trusts.

The SC is one to be upheld as it has kept up the organized sector pensions to be capped at a higher range than that of pension caps in the unorganized sector.

What was rationale of Rs. 15000 cap?

  • The employees pension scheme was formulated for employees having less salary.
  • The government was of the opinion that employees drawing higher salaries in bigger establishments should manage their own pensions.
  • The pension scheme was formulated on such a principle where the employee can join the EPFO pension scheme and choose the investment plan.

What is the significance of the EPF?

  • It is mainly meant for those workers who draw less salaries and cannot have a corpus from which they can benefit in their old age.
  • The ceiling of Rs. 15000 and the pension ceiling of Rs 7500 for serving for a maximum period of 35 years which was built into the pension scheme was nullified by the SC.
  • It requires clarity on whom the judgement is applicable to.
  • It has implications for employees drawing more than Rs 15000 to which employer was making an equal contribution but was not getting reflected in the records.
  • It has greater implications if the EPF ceiling of Rs. 15000 itself would be raised.
  • At a time when Universal Basic Income is being debated and a pension scheme is being formulated for the unorganized sector, the government should formulate a progressive and modern policy for the unorganized sector as well.

Positive aspects of EPFO

  • EPFO has given a universal account number to each employee so that a person changing jobs between two organisations need not face hassles changing their account.
  • It has also implemented online settlement of claims.

Way forward

  • If the employer and the employee agree to contribute an equal amount to the EPFO, then the full benefits should accrue to the employees. The EPFO should find such investment mechanisms to give such long term returns so that such benefits are given to the employees.
  • It is estimated that the government’s pension bill would be equivalent to the wage bill by the end of 2019 or 2020. So, there should be a dedicated and specialised organisation which can manage the EPFO funds to invest in such schemes which can provide adequate returns to cover the pension bills of the employees.
  • Currently, there are regulations on the EPFO for investments of the EPFO funds like not more than 5% being allowed to be invested in the capital markets. This cap was raised to 15% recently.
  • Options can also be considered for allowing foreign pension funds to be invested in India.
  • Presently the private sector is contributing to one authority. Rather there may be encouraged a competition of sorts between two or three organisations to secure money from the company.

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By admin April 2, 2019 11:07