Is higher pension scheme beneficial ?

In this article let us figure out Is higher pension scheme beneficial for everyone and understand under what condition and for whom it is beneficial.

Table of Contents

After the news of Supreme Court about to choose Higher pension scheme, most of the eligible employees think they will get benefit out this scheme, however experts in this field speaks a different opinion.

So what is the truth and most importantly what is applicable to you ?

Thus in this article ,we will figure out the fundamental question about higher pension scheme.

PF calculation on Salary

PF Balance check on EPF Passbook

What is higher pension scheme of EPS ?

The EPS amendment of August 22, 2014 had 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 per cent on their actual salaries (if it exceeded the cap) towards the EPS.

It gave all EPS members, as on September 1, 2014, six months to opt for the amended scheme. This was extendable by another six months at the discretion of the Regional Provident Fund Commissioner. The amendment, however, required such members (with actual salaries over Rs. 15,000 a month) to contribute an additional 1.16 per cent of their salary exceeding Rs. 15,000 a month towards the pension fund.

What is Supreme court Judgment on higher pension scheme ?

The employees who had exercised option under the provision to paragraph 11(3) of the 1995 scheme and continued to be in service as on 1st September 2014, will be guided by the amended provisions of paragraph 11(4) of the pension scheme. All the employees who did not exercise option but were entitled to do so but could not due to the interpretation on cut-off date by the authorities, ought to be given a further chance to exercise their option. Time to exercise option under paragraph 11(4) of the scheme, under these circumstances, shall stand extended by a further period of four months.

Also, such employees had to make an additional contribution at the rate of 1.16 per cent on salary exceeding fifteen thousand rupees. This condition for additional contribution has also been invalidated by the Court on the ground that it is ultra vires the Employees Provident Fund and Miscellaneous Provisions Act 1952. However, the Court suspended this part of the judgment for a period of 6 months to enable the Centre to explore legislative amendments.

On all other counts, the Court has approved the 2014 amendments, including the changes brought to the method of computation of pensionable salary. The Court clarified that the relaxations allowed by it in the judgment will not be available to employees who retired before September 1, 2014 without exercising the option. As per the 2014 amendment, employees who join service after September 1, 2014, are not eligible to join the pension scheme if their monthly salary is above Rs.15,000/-. Since this clause has not been interfered with by the Court, the benefit of the judgment will be available to only those who were members of the scheme as on September 1, 2014.

The EPF members who have availed of the higher option but retired before September 1, 2014 will receive the benefits extended before the amendment.

The employees of the companies included under the exempted category where trusts handle the PF amount instead of the EPFO will also get the benefit of the judgment.

If those who retired before September 1, 2014, haven’t made option yet, they can’t avail of the option afresh. The judgment may adversely affect those who retired before September 1, 2014 and obtained a favorable Kerala High Court verdict for a higher pension upheld that its 2016 judgment in RC Gupta vs Regional Provident Fund Commissioner in which it was held that there can be no cut-off date to avail benefit of the option under the scheme.

The Court also held that exempted and unexempted establishment are to be treatment equally. Employees who retired before September 1, 2014, without exercising the option under para 11(3) cannot avail the benefit of the judgment.

The apex court upheld the EPF amendment 2014 which prescribed taking the average salary for the last five years instead of last year’s average salary while calculating pension.

What is Pension and its Benefits.

What is PF and its Benefits.

Eligibility of higher pension scheme

Primary conditions to be satisfied in order to be eligible to opt to contribute to pension on a higher salary are as below:

The employee should be a member of EPS on or before 1 September 2014.
The employee should have been contributing to Provident Fund on a higher salary i.e., the employee should not have restricted contributions to the statutory wage ceiling, but should have been contributing on wages greater than Rs. 5,000 / Rs. 6,500 / Rs. 15,000 per month.

Once the above-mentioned primary conditions are satisfied, employees who are eligible to opt to contribute to pension on a higher salary can be classified into the following categories:

i) For employees who had retired before 1 September 2014

Already exercised the option to contribute EPS on a higher salary prior to 1 September 2014, under the pre-amended scheme: If this option is already opted for and accepted by EPFO, then the employee would be eligible for pension on a higher salary based on the pre-amended scheme and they would not be impacted by the current SC ruling.
Employee has paid contribution to PF on higher salary and option was exercised, but the application was rejected by the EPFO: If their application to contribute to pension on higher salary was rejected by the PF department, such employee can opt to contribute to EPS on higher salary based on the SC ruling and the guidance provided in circular issued by PF department dated 29 December 2022.
Employees who never exercised this option: SC ruling is not applicable and such employees do not have an opportunity to choose higher pension contributions.

ii) For employees who have retired after 1 September 2014

Employee has paid contribution to PF on higher salary but not exercised the option: There is no explicit provision in the SC ruling that employees who have retired on or after 1 September 2014 are not eligible to apply for higher pension. In view of this, such categories of employees can choose to exercise this option as well based on guidance provided in the circular issued by the PF department dated 20 February 2023.
Employee has paid contribution to PF on higher salary and option is exercised, but the application was rejected by the EPFO: If their application to contribute to pension on higher salary was rejected by the PF department, the employee can exercise a fresh option to contribute to EPS on higher salary by 3 March 2023.

iii) For employees who had joined before 1 September 2014 and are still in service

Employee has paid contribution to PF on higher salary but not exercised the option: Employees have a window of 4 months (i.e., until 3 March 2023) to make an application to opt to contribute to pension on higher salary based on guidance provided in circular issued by PF department dated 20 February 2023.
Employee has paid contribution to PF on higher salary and option is exercised, but the application was rejected by the EPFO: Employees have a window of 4 months (i.e., until 3 March 2023) to make an application to opt to contribute to pension on a higher salary.
Employee has not paid contribution to PF on a higher salary and also not exercised the option: Not eligible to opt for this scheme.

Employee joined on or after 1 September 2014:

Not eligible for EPS membership on higher pension scheme if earning more than Rs. 15,000

Taking a loan/ advance against the PF balance will not preclude the employee who is otherwise eligible for exercising the option of higher contribution to EPS scheme provided the employee makes good all such contributions as per the modalities which will be prescribed. However, acceptance of the option of the contribution of a higher pension in such cases will be at the sole discretion of EPFO.

Role of Employer in the higher pension scheme

Effect of opting higher pension scheme.

If the employee opts to contribute to pension on a higher salary, then the differential funds from the PF account will be diverted retroactively to the pension account. Further, the interest paid to the employee on such PF funds which will be diverted may not be available to the employee.

For Example:

Particulars	Amount (Rs.)
Basic salary per month	1,00,000
Other allowances per month	5,00,000
Total salary per month	6,00,000

Current monthly contributions:

Employee share: 12% of basic salary which will be deposited in PF

Employer share: Total contributions are 12% of basic salary out of which 8.33% of Rs. 15,000 (Rs.1,250) will be deposited in EPS and the balance in PF

Month	PF contribution (Rs.)		EPS contribution (Rs.)
	Employee PF	Employer PF	Employee EPS	Employer EPS
Oct-23	12,000	10,750	NIL	1,250 (8.33% of Rs. 15,000)
	(12% of Rs.1,00,000)	(12% of Rs. 1,00,000 minus Rs. 1,250)

Monthly contributions after opting for higher pension contributions:

Employee share: Total contributions are 12% of the basic salary. Contribution of 1.16%* of wage in excess of Rs. 15,000 pm will be allocated towards EPS and the balance will be deposited in PF

Employer share: Total contributions are 12% of basic salary out of which 8.33% of basic salary will be deposited in EPS and the balance 3.67% in PF

Month	PF contribution (Rs.)		EPS contribution (Rs.)
Month	Employee PF	Employer PF	Employee EPS	Employer EPS
Oct-23	11014	3670	986	8330
Oct-23	[(12% of Rs. 1,00,000) minus 986]*	(3.67% of Rs.1,00,000)	(1.16% of Rs. 85,000 i.e., 1,00,000 minus 15,000)	(8.33% of Rs. 1,00,000)

EPFO has outlined in their circular dated 20 Feb 2023 of higher pension scheme that the method of the deposit will be outlined by EPFO in subsequent circulars.

How to apply higher pension scheme online ?

Click Here to know the procedure for applying higher pension Scheme

What is the advantage & disadvantages of higher pension scheme?

Advantage :

Receive high Pension after retirement.
Family member receive 50% of pension amount after death of employee.

Disadvantage:

Low corpus of PF at the time of retirement
Low PF accumulation leads to low interest on PF amount
Higher pension attracts high tax however no tax on withdrawal PF amount.

Higher pension scheme Calculator

Visit the site of EPFO
Click on Employees on Service section on the upper task bar.
Click on Member UAN online Services.
Click on “Application status on pension on higher wages” from the Important link Box.
Click on ” Calculator for estimating due for pension on higher wages” from Important Link Box on right side.

Conclusion:

I hope I have covered all the important aspect of higher pension scheme. The above information and knowledge help to decide to whether to chose or not.

If you like the article ,please write your valuable feedback on the comment below. I want to know about the effort I make in my article from your comment.

Q&A

How much amount a member shall pay after opting higher pension scheme ?

Clear explanation with example has been given above on Effect of opting higher pension scheme to understand how much amount to be paid for opting higher pension scheme

What is the ceiling of EPF ?

15,000 per month is the ceiling limit for contribution of EPF.

Is pension Taxable ?

Yes, Earlier Tax was not levied on Pension. Now at this moment Pension is taxable. If you are a private employee than after crossing Rs.5 Lakh per annum, then tax will be applicable to you. Tax rate will be as as defined by Income tax rule for this financial Year.