In light of the recent Supreme Court order upholding the 2014 amendments to the EPFO pension scheme, give an overview of this social security scheme. How is the apex court’s order expected to affect the pensions segment?

Recently, the Supreme Court in a crucial judgment upheld the Employees’ Pension (Amendment) Scheme, 2014 of the Employees’ Provident Fund Organisation (EPFO) as “legal and valid”.

EPFO Pension Scheme:

  • EPF is the main scheme under the Employees’ Provident Funds and Miscellaneous Act, of 1952. The employee and employer each contribute 12% of the employee’s basic salary and dearness allowance towards EPF.
  • Through an amendment to the Act in 1995, Section 6A was inserted, to provide pension to employees.
  • The employee’s entire part goes to EPF, while the 12% contribution made by the employer is split as 3.67% contribution to EPF and 8.33% contribution to EPS.
  • The Government of India contributes 1.16 per cent as well for an employee’s pension.
  • The EPS amendment of 2014, raised the pensionable salary cap to Rs 15,000 a month from Rs 6,500 a month and allowed members along with their employers to contribute 8.33% towards the EPS. It gave all EPS members, as on September 1,2014, six months to opt for the amended scheme.
  • However, the amendment required such members (with actual salaries over Rs 15,000 a month) to contribute an additional 1.16% of their salary exceeding Rs 15,000 a month towards the pension fund.

Impact of SC judgement:

  • SC observed that the 2014 amendments to the EPS will apply to establishments exempt and not exempt.
  • The employees who have not exercised the option to join the Employees Pension Scheme will be given an opportunity to join in the next 4 months.

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