What is the Higher Pension Scheme in EPFO? A Detailed Overview
Employees' Provident Fund Organization members can receive a pension upon retirement. Employers and employees contribute 12% of their base pay and dearness allowance to the Employee Provident Fund (EPF). The Employees' Pension Scheme (EPS) receives 8.33% of the employer's 12% contribution, while the EPF gets 3.67%. Even if the employee receives more pay, the 8.33% EPS contribution is limited to a maximum of Rs. 15,000. In 2014, the EPS was amended to include a cap on the EPS contribution. Before the 2014 EPS amendment, employees could choose to make high EPS contributions. This article discusses the claim procedure and the EPFO circular on enhanced pensions.
Table of content
What is the EPFO Higher Pension Scheme?
The government launched a pension plan in 1995 with Section 6A of the EPF Act. Employers are required to contribute 8.33% to the Employees Pension Scheme, 1995 (EPS-95). The maximum monthly pension was set at Rs. 5,000 or Rs. 6,000 by the EPS-95. Consequently, employers were required to pay 8.33% of Rs. 5,000—later increased to Rs. 6,500—to the pension plan. Paragraph 11(3) of the EPS-95 was amended in March 1996 to allow the employer and employee to contribute 8.33% of actual salary (beyond the Rs. 5,000 or Rs. 6,500 threshold) to the EPS. A salary this high would be regarded as pensionable. However, the employees had six months to submit a joint option form to the EPFO to increase their pension contributions to the EPS.
Effective January 9, 2014, the government amended the EPS-95 plan. It raised the maximum pensionable wage to Rs. 15,000. Additionally, the clause in paragraph 11(3)—which states that the employer and employee may exercise their choice to contribute EPS on a greater income amount—was left out. Employers would be required to pay an EPS payment of 8.33% on a maximum of Rs. 15,000 to employees who joined the EPF plan after January 9, 2014, even if they received a higher wage. However, if they submitted a new joint option with the EPFO within six months, that is, by February 28, 2015, employees who were a part of EPS-95 or joined before January 9, 2014, might contribute 8.33% to EPS on the actual wage as opposed to the ceiling of Rs. 15,000.
Eligibility for the Higher Pension Scheme
EPFO released a circular in December 2022 detailing the qualifications for a higher pension and the application process. The requirements are listed below:
The workers retired before January 9, 2014.
The employees exercised their joint option under EPS-95 para. 11(3) as members of EPS-95.
When salaries are above the Rs. 5,000 or Rs. 6,500 pay ceiling, employers and employees contribute EPS.
The EPFO refused the exercise of such an option.
However, for workers enrolled in the EPF before January 9, 2014, but continued to work or retire after 2014, the EPFO circular did not offer a higher pension option. According to the Supreme Court's ruling, these workers could also be eligible for a larger pension. As a result, the EPFO published a second circular in February that mentioned increased pension eligibility requirements for workers retired or in service after 2014. The requirements to file a joint option and receive a larger pension are listed below:
Employees who were members before January 9, 2014, remained members following that date.
When salaries were above the Rs. 5,000 or Rs. 6,500 pay ceiling, both employers and employees made contributions to EPS.
Employers and employees who were members of EPS-95 chose not to utilize the joint option granted by the 2014 modification and the removed paragraph 11(3) of the EPS.
Employees who were EPS-95 members who exercised their joint options under the EPS's deleted paragraph 11(3) but did not submit fresh joint options following the 2014 change are not qualified to receive a higher pension. Regardless of their actual pay, these employees' EPS contributions will be 8.33% of a maximum of Rs. 15,000.
Higher Pension Contribution Under EPS
There were issues with higher salary pension contributions after the 2014 modification. Numerous workers acknowledged that they were aware of the joint option to contribute to the pension with the higher paycheck amount. Many employees submitted a joint option, but the EPFO denied it. Employers that did not file the joint option contributed 8.33% of the pension on employees' actual earnings; nonetheless, the pension computation used Rs. 15,000 as the pensionable pay. As a result, many workers petitioned the High Courts for larger pensions based on their actual salary contributions. The Supreme Court heard the case. The following is a summary of the Supreme Court's ruling:
Employee status | Exercise of joint option | Eligibility to claim pension contribution of 8.33% on a higher salary | Mode of claim of higher pension |
Employees in service as of 01/09/2014 | Exercised joint option and rejected by the EPFO | Yes | Filing a higher pension claim application |
Employees in service as of 01/09/2014 | Not exercised joint option but contributing to EPS above the threshold of Rs.5,000/Rs,6,500 | Yes | Exercising the joint option |
Employees retired before 01/09/2014 | Exercised joint option and rejected by the EPFO | Yes | Filing a higher pension claim application |
Employees retired before 01/09/2014 | Not exercised joint option | No | Not applicable |
According to the Supreme Court, employees enrolled in the EPF before January 9, 2014, but have not yet exercised their joint choice, have until March 5, 2023, to do so. Additionally, the EPFO moved the deadline to July 11, 2023. From the moment of their hire, these individuals will have a higher EPS contribution.
Illustration:
In the year 1998, Mr. A joined the EPF.
He hasn't used the joint option.
In 2015, his pay rose to Rs. 50,000.
His company makes an EPF contribution of Rs. 6,000, or 12% of his base pay.
The EPS will get Rs. 1,250 of the employer's contribution or 8.33% of Rs. 15,000, the statutory wage ceiling.
Rs. 4,750, or Rs. 6,000 minus Rs. 1,250, will be allocated to the EPF.
According to the Supreme Court's ruling, he exercises the joint option by July 11, 2023, because his EPS contribution exceeds the Rs. 6,500 statutory wage cap.
Following the submission of the joint option, his employer will make contributions to EPF of Rs. 1,835 (Rs. 6,000 - Rs. 4,165) and Rs. 4,165 (i.e., 8.33% of Rs. 50,000; his pay).
The EPFO will transfer the difference between the EPF and EPS and compute the monthly EPS amount, 8.33% of the actual pay.
The difference from the PF account will be transferred to the EPS account, and the EPFO will go back to the joining date or 01/11/1995, whichever comes first. However, the increased pension contribution will lower the employee's retirement EPF lump payment corpus.
EPFO Guidelines for Higher Pension
The joint option/higher pension claim application includes a disclaimer or declaration
In the joint option/application form, an employee must expressly consent to a share adjustment from PF to EPS and a re-deposit of the funds.
To transfer funds from the exempted PF trust to the EPFO pension fund, an employee must provide the trustee with an undertaking. The undertaking will be in existence for the deposit of the required contribution and interest up until the payment date within the allotted time.
The interest rate mentioned in paragraph 60 of the 1952 EPF Scheme applies to the workers' contribution share return from the employer.
The following paperwork must be submitted with The higher pension claim application
Proof of joint option, as confirmed by the employer, was submitted under EPF system para. 26(6).
Proof of joint option, as confirmed by the employer, was submitted in paragraph 11(3).
Evidence that EPS contributions are made to the PF account more than the existing salary cap of Rs. 6,500 or Rs. 5,000.
APFC or EPFO's formal rejection of such a request or remittance.
The application for a joint option must include the following documents:
Evidence that EPS contributions are paid to the PF account more than the existing salary cap of Rs. 6,500 or Rs. 5,000.
Employer-verified proof of joint option submitted under EPF program para. 26(6).
The deposit mechanism and pension computation will be subject to additional circulars from the EPFO.
After filing an application and paying any outstanding contributions, an employee may file a complaint on EPFiGMS if they are unhappy with their pension.
Higher Pension Scheme Application Last Date
The EPFO first declared that May 3, 2023, was the deadline for applying to the higher pension plan. However, because of several representations, the deadline was extended. As a result, the deadline for applying to the higher pension plan is July 11, 2023.
EPF Higher Pension Option Form
Entitled workers who retired before 2014 submit a higher pension claim to the EPFO. They can apply with the regional EPF offices or online (as shown below) for the higher pension claim. To receive higher pensions, qualified employees who joined EPS-95 but are retired or still employed after 2014 may apply online (as shown below) or in person at the relevant regional EPF offices by July 11, 2023.
Steps to Track EPFO Higher Pension Application Status
You can check the status of your application for an EPFO higher pension by taking the steps mentioned below:
Step 1: Visit the EPFO Unified Members portal.
Step 2: Choose "Track Application Status for Higher Wages Pension."
Step 3: Under the "Track application status for Pension on Higher Wages" heading, select "Click Here"
Step 4: Select and enter the application acknowledgment number, PPO, or UAN.
Step 5: Click "Get OTP," enter the Captcha code, and check the consent box.
Step 6: After entering the OTP, select "Get Status." The status will appear on the screen.
Steps to Apply for a Higher Pension in EPF
For employees who retired before 2014, the process for requesting a higher pension payout is as follows:
Step 1: Visit the EPFO Unified Member website.
Step 2: Choose the "Online application of Joint Option: Pension on Higher Salary" option in step two.
Step 3: Complete the information and send the form.
The applicant will receive the receipt number from the EPFO, which will digitally record each application. It will send the applications to the appropriate employers, who will use an e-signature or digital signature to confirm them before processing them further. After reviewing the case, the applicants will get the higher pension decision from the APFC/RPFC-II by SMS, phone, email, or postal mail.
The field officers will review the application. The wage information will be compared with the field offices' data. The dues will be calculated, and RPFC-II/RPFC-I/APFC will issue an order for the deposit or transfer of the dues after the information supplied by the employers and the field officers matches. The APFC/RPFC-II will notify the employer and the pensioner of any discrepancies and give them a month to remedy them. If the employer rejects the application, customers can amend any problems or submit more proof before the form is rejected. The pensioners will be informed of this change, which will be offered for a month.
Steps to Apply for a Joint Option Online Pension Form in EPF
The following procedures outline how employees covered by EPS-95 but were hired or retired after 2014 can exercise or apply for a joint option under EPS-95 paragraphs 11(3) and 11(4) to get a larger pension:
• Step 1: Visit the EPFO Unified Member website.
• Step 2: Click "Pension on Higher Salary: Exercise of Joint Option under paras. 11(3) and 11(4) of EPS-1995 on or before 3rd May 2023."
The field officers review the joint option forms. The information is verified with the wage details provided by the employers. When employers' information and field officers' data match, the dues are computed, and RPFC-II/RPFC-I/APFC issues an order for the deposit or transfer of the dues. When there is a discrepancy, the APFC/RPFC-II notifies the employer and the employee, and they have one month to find a solution. If the employer rejects the join option, they will have a chance to remedy any inaccuracies or provide more proof. This opportunity must be offered to employees with notice and for one month.
Calculation of EPFO Higher Pension
Higher pension estimates for individuals who retired before 2014:
The pension amount must be calculated using the average monthly salary received during the contributed period 12 months before quitting EPFO.
Higher pension calculations for those who retired after 2014:
The pension amount must be calculated using the average monthly salary received for the 60 months before leaving EPFO during the contributed period.
The following formula is used to calculate pensions under the EPS scheme:
(60 months x service duration average salary)/70
Conclusion
Approximately 97,640 Provident Fund (PF) members and pensioners nationwide earn pensions based on higher wages (PoWH) under the Employees' Pension Scheme (EPS) 1995. According to current sources, this number includes individuals who have received demand notifications and those who have obtained pension payment orders (PPO). Following a Supreme Court decision in November 2022, employees can now choose to raise their pension based on higher salary contributions thanks to the higher EPS pension option. To guarantee they receive their enhanced pension, only people who meet the requirements of this provision are approached to transfer their arrears.
FAQ
Q1. What is a higher pension scheme?
A Supreme Court decision in November 2022 made the higher EPS pension option available, allowing workers to raise their pension based on higher wage payments.
Q2. What are the new rules for EPF pension 2024?
Mansukh Mandaviya, Minister of Labor and Employment, gave his approval to the Centralized Pension Payment System (CPPS) in September 2024. This approach will enable 7.8 million EPS members to take their pensions out of any bank location nationwide.
Q3. Who is eligible for the higher EPS pension?
Workers enrolled in the EPF on September 1, 2014, receive a larger pension. It entails making more contributions to the pension fund, which progressively increases in value over time as interest accrues, increasing the total pension amount.
Q4. Who is not eligible for a higher pension from EPFO?
To execute the increased EPS pension application, the EPFO has offered employers one final opportunity to upload employee wage details. A person will not be qualified to get a larger pension if all of their employers reject their pension application.
Q5. What is the last date for the higher pension scheme 2024?
Employers were given several chances to submit wage details, etc., of EPS retirees and EPF members online until September 30, 2023, again until December 31, 2023, and then until May 31, 2024, to ensure that companies can handle the increased number of pension applications.
Q6. How to get a higher pension from EPF?
Eligible employees must file for a higher pension or a combined claim with the relevant regional PF commissioners to get a higher pension.
Q7. How to opt for a higher pension in EPFO?
Members of the EPS-95 who were in service or resigned after 2014 may choose to receive a larger pension by submitting a joint option application to the regional PF commissioner by July 11, 2023.
Q8. Is the higher pension scheme beneficial?
It helps people who don't need a substantial lump sum payment when they retire but would like a higher monthly income. The monthly pension amount will rise due to more pension contributions, but the employee's retirement EPF lump payment will decrease. Therefore, people who have other investments and will get a lump sum payment when it matures might choose the higher pension plan. This lump sum EPF payment is tax-exempt after retirement, but the monthly pension is taxable.
Q9. How to calculate EPF higher pension?
The following formula for determining an EPF higher pension: The pension amount is calculated as (pensionable wage x pensionable service)/70. Soon, the EPF will publish a circular outlining the methodology for determining larger pensions.
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