For a decent EPF pension

The rapid increase in the number of senior citizens in India is noteworthy: 24.7 million in 1961; 104 million in 2011; 138 million (preliminary estimate) in 2021; and a projected 194 million for 2031, with the percentage share of the total population in these years being 5.6, 8.6, 10.1, and 13.1, respectively. However, government support for old-age social security has not kept pace; in fact, it is on the decline, as is evident in the new pension scheme, which is inferior to the existing one. Particularly concerning is the denial of a higher pension right to a large number of employees covered under the Employees’ Provident Fund (EPF) scheme, with the complete exclusion of a category of employees recruited after September 1, 2014. The grounds, though technically accurate and perfectly legal, are nothing but devices to deny the higher pension, an afterthought of the government to withdraw what was introduced with so much enthusiasm in 1996.

The history of the EPF scheme, the Old Age Social Security Scheme for providing provident funds to workers in factories and other establishments, dates back to its introduction in 1951, emphasising the government’s urgency for workers’ welfare. The ordinance was converted later into a central enactment in 1952. 

The employees’ pension scheme, added in 1995 with a modest pension benefit engineered through a ceiling on pensionable salary. It was Rs 5,000 when the scheme came into effect and was hiked in 2001 to Rs 6,500 and then to Rs 15,000 in September 2014. These were the sums on which both the PF contributions were made and the pension calculated. For instance, a person who has completed the full pensionable service, say, 35 years, and has paid during the service time the requisite contribution together with her or his employer on the statutory wages of Rs 5,000 would get the pension of Rs 2,500 as per the pension formula: Pension = Pensionable Service X Pensionable Salary/70. The pensionable salary means the salary on which the contribution is paid, which is the statutory ceiling of Rs 5,000 or less if the actual salary is lower than the ceiling. The subsequent increased ceilings of Rs 6,500 and Rs 15,000 entail a maximum pension of half these sums. This, the ceiling, is exactly the reason why those with high salaries, maybe even with more than a lakh, get paltry pension sums like Rs 1,500 a month.

Since the pension sum was disproportionately lower than the last drawn salary, the government made a change in March 1996, allowing the EPF contribution on the actual salary above the ceiling, like Rs 5,000, etc., which facilitated the pension proportionate to actual salary instead of ceiling amounts.

In response, a large number of employees and employers made higher contributions to receive a higher pension. However, despite higher contributions, many were denied the anticipated higher pension on the ground that they did not file their options for a higher pension. Legal battles ensued, reaching the Supreme Court, which delivered its judgement on November 4, 2022.

Impractical Conditions

Unfortunately, the ordeal of senior citizens persists due to the impractical eligibility conditions of the government. Paying the higher contributions alone is not sufficient for the EPF Organisation, but it should be backed by the exercise of the option for a higher pension within the timeframe and style it wanted; the payment of the higher sums itself is not accepted as proof enough for the employee’s intent for higher benefits, including pension accruing out of it!

Not just that, there are several other queer norms. Just one example in a particular situation on options: the direction implies, like the authorities saying, “If you did not exercise the option, you are not eligible. If you have exercised it and I rejected it, then you are eligible, but it is your responsibility to show the proof of your application and my rejection; the wrongful rejection and the wrong interpretation are my exclusive rights, not yours.”

While the Supreme Court gave its verdict on November 4, 2022, the process is continuing, and the EPFO has recently extended the deadline until the year-end for the employers to submit their part of the information on the higher pension applications. Some 17.5 lakh people applied.
All this suggests that the government has found the higher pension scheme unfeasible and wants to minimise the burden to the extent possible. In fact, the higher pension scheme has been totally withdrawn for post-September 2014 recruitees. 

The government’s non-feasibility argument is based on its actuarial evaluations. But the available data and the need for old-age security and common sense suggest that it is not at all difficult to implement since the pension is contribution-based and a higher pension is based on a higher contribution.

The latest EPFO data for 2021–22 shows that the accumulated pension corpus is Rs 57,526.18 crore, and the annual interest on the corpus is Rs 50,613.95 crore. Add to this, the unclaimed funds, which are called deposits in inoperative accounts, total more than Rs 30,000 crore. The accumulated corpus is Rs 689,210.72 crore. Against this heavy amount, pension payments in one year to 72.74 lakh pensioners are just Rs 12,933.12 crore. Together with the withdrawal benefit of another Rs 7,989.01 crore, the total annual payout is Rs 20,922.14 crore, that is, 19.34% of the annual receipts into the pension fund.

So, there will not be a cash problem for allowing a higher pension because more funds will be accruing year after year; the EPFO already has a member base of 7.74 crores, and the number will keep increasing in the expanding economy. Even assuming, though most unlikely, that some shortfall ever occurs, it will be the duty of the government to come to the aid of the EPFO to meet its social obligation.

So, the dearth is not of money but of will; a decent EPF pension equal to half the last drawn salary can be given to all the members to ensure them a dignified life after retirement.

(The writer is a development economist and commentator on economic and social affairs)