Explainer: Are you eligible to opt for a higher pension from EPS?

What happened in the 2014 amendment? What did the Supreme Court say in its judgement? And above all, are you eligible for the scheme? This explainer tries to answer all these queries

What were the key changes brought about in the amendment to EPS-1995 scheme in 2014?

The Union government had amended the Employee’s Pension Scheme (EPS) 1995. These amendments came into effect from September 1, 2014.

“The pensionable salary cap was increased from Rs. 6,500 to Rs. 15,000 per month as a result of the EPS amendment,” says Aditya Chopra, managing partner, Victoriam Legalis - Advocates & Solicitors.

The amendment also gave members of EPS the opportunity to opt for a higher pension on the basis of their actual salary rather than the capped basic salary.

Sandeep Bajaj, managing partner, PSL Advocates & Solicitors says, "The limit was raised to assure greater coverage of low-wage employees, as well as higher contributions from employers and employees; thereby limiting the depletion and outflow of cash from the Government's corpus." 

Why did some members go to court?

“In an attempt to restrict the number of employees opting for such higher benefits, the EPFO through its EPS Amendment had specified a timeframe of six months for employees to opt for the higher pension benefits, failing which they would not be eligible to opt for the higher pension entitlements,” says Anshul Prakash, partner, Khaitan & Company.  

However, this timeline was not conveyed to the employees. “As a result, many employees missed out on the timeline. When they applied for this scheme, they were denied on the ground that it was barred by limitation," says Ekta Rai, advocate, Delhi High Court.

What are the key takeaways from the Supreme Court judgment of November 2022?

The High Courts of Delhi, Rajasthan and Kerala had passed verdicts striking down the Employees Pension (Amendment) Scheme 2014. The affected employees then approached the Supreme Court, which gave its judgment in November 4, 2022 in the case (Employee Provident Fund Organsation and anr. vs Sunil Kumar and others.).

The Supreme Court upheld the constitutional validity of the Employees' Pension (Amendment) Scheme, 2014.

"It also extended the cut-off date to exercise the joint option under EPS by four months for the employees who could not exercise this option earlier," says Sanjeev Kumar, partner, Luthra and Luthra Law Offices India. The deadline to apply hence is March 3, 2023.

According to the amendment, employees need to contribute an additional 1.16 per cent of the salary exceeding the basic salary of Rs 15,000. The Supreme Court has objected to this provision as being ultra vires. This part of the judgement has been suspended for six months to allow an amendment to be made to that effect. If this happens, employees won't have to contribute to EPS.

What will be the impact of the Supreme Court judgment?

Besides employees who could not avail of higher pension earlier (because they were not informed about it), the judgment also offered one-time relief to employees who were members of the pension scheme on September 1, 2014 and had been making a higher contribution i.e., contribution on their actual salary if it was higher than Rs 15,000 per month. “These employees are now required to give a joint declaration, along with their employer, to the EPFO in order to continue making contributions on the higher amount,” says Sanket Jain, partner, Pioneer Legal.

What is the joint option scheme?

The joint option scheme has been introduced by the 2014 amendment to EPS 1995. It envisages that an employee earning a basic salary above Rs 15,000 per month is entitled to apply for higher pension from EPS based on the actual salary paid. Hence, the cap of Rs 15,000 will not apply.

The scheme has been called the joint option scheme because the 2014 amendment requires employees to contribute 1.16 per cent on salary exceeding the basic pay of Rs 15,000. However, the Supreme Court has declared this aspect of the amendment as illegal and given the Centre six months to amend this provision.

Who is eligible for the joint option scheme?

The Supreme Court judgment has opened the door for most employees to opt for a higher pension. “The judgment stated that all employees, with the exception of those who retired before September 1, 2014, and did not exercise their option for a higher pension, are eligible to execute the fresh option of a higher pension within the time frame set by the apex court,” says Anushkaa Arora, principal & founder, ABA Law Office.

According to the EPFO circular dated February 20, 2023, employees and employers who did not exercise the joint option in the previous window while being EPS members, and employees who were members before September 1, 2014, and continued to be a member on or after that date can apply for the the joint option scheme to the concerned regional office.

If an employee at the time of joining the EPF scheme had a basic salary exceeding Rs 15,000 per month, they cannot join the scheme.

“The EPFO circular, however, is silent about individuals who were members of EPS on September 1, 2014 but did not opt for the higher contributions during the six-month window brought about by the EPS amendment, despite the apex court allowing such individuals as well to opt for higher contributions,” points out Arora.

Before opting for the higher pension scheme, consult a financial advisor and understand the implications for you. “The higher contribution towards EPS may not necessarily translate into higher pension benefits. The final pension amount depends on a number of factors, including the number of years of service and the average salary earned in the last 60 months,” says Chopra.

Who is eligible for the joint option scheme?

Category	Eligible to opt for joint option
Existing employees who had not exercised their option for higher contribution	Yes
Existing employees who had exercised their option for higher contribution, even if they had not exercised the fresh option in 2014 within six months	Yes
Employees who have retired on or after September 1, 2014, with or without exercising their option for higher contribution	Yes
Employees who retired prior to September 1, 2014, after having exercised their option for higher contribution	Yes
Employees who retired prior to September 1, 2014, without exercising their option for higher contribution	No
Employees who joined on or after September 1, 2014, with

basic salary over the prescribed threshold of Rs. 15,000 per

month

No

Source: Luthra and Luthra Law Offices India