Private sector employees can get a higher pension: What this means for you

If you have been an employee provident fund (EPF) subscriber before 2014, you can now opt for receiving a monthly pension instead of withdrawing the accumulated corpus in one go. The Supreme Court has directed Employees’ Provident Fund Organisation’s (EPFO) to allow subscribers to receive a pension just like government employees do.

Many employees were not aware that EPFO had started a pension scheme in 1995. In this scheme, EPFO had then said that an employer has to contribute 8.33 per cent of the basic salary or Rs 541 a month (whichever is lower) towards Employee Pension Scheme (EPS). This gave a limited pension to an employee depending on the number of years he was enrolled in the scheme.

At that time, EPFO also said that if an employee wanted a higher pension, he could increase the contribution to 8.33 per cent of the actual basic salary. But EPFO had to be intimated that the employee wants to contribute more than Rs 541 a month towards EPS.

Most employees were not aware of the provisions. On retirement, some employees asked EPFO to commute their EPF contribution to EPS. But EPFO declined and said that it had to be done within six months of joining the scheme. The pensioners approached the court to seek relief as the six-month timeline was not mentioned in the notification. “The Supreme Court ruled in favour of the subscribers. The Court said that it’s a beneficial provision and EPFO should allow its subscribers to take benefit of it,” says Kuldip Kumar, partner and leader - personal tax, PwC India. The court even allowed retired subscribers to get a pension by paying the required amount to EPFO.

Tax experts say that as the directive came from the Supreme Court, it’s binding on EPFO and all those who joined EPFO before September 1, 2014 can benefit. Those who have joined EPFO after September 1, 2014 and have a salary above Rs 15,000 are not eligible for a pension. However, those starting with salaries lower than 15,000 can contribute to EPS. But the cap of Rs 15,000 will kick in when their salary rises. Tax experts say that those eligible for a pension can submit applications to EPFO through their companies to increase the pension.

However, not all employees give their contribution to EPFO. Some companies have their own EPF trust. “There’s still lack of clarity whether those in private trusts would be eligible for increasing their contribution towards pension,” says Kumar. Tax experts feel that EPFO will soon provide clarity on this issue.