Kozhikode: As the name suggests the Provident Fund has been deemed a valuable kitty that would come handy in the sunset years for retired employees. However, many retired and serving employees harbour misgivings about the Employees Pension Scheme or EPS which was launched in 1995. With the Supreme Court recently extending the deadline to join the EPS, the current and retired employees have been weighing its pros and cons.
The EPF is managed by the Employees' Provident Fund Organisation. Several retired and serving employees feel that the pension it disburses, which is not in proportion to their salary, is rendering a huge loss to all subscribers.
They are not even getting the interest on the deposited amount. And worse, they are also not entitled to receive the deposit back.
So many allege the EPFO is fleecing the subscribers through the scheme.
Recent SC verdict
It was only late last year the Supreme Court held the provisions of the Employees Pension (Amendment) Scheme 2014 to be legal and valid. The SC also allowed employees who have not exercised the option to join another six months to do so. The court was pronouncing the judgments in the appeals filed by the EPFO and the Union Government challenging the Kerala, Rajasthan and Delhi High court judgments which had quashed the Employee's Pension (Amendment) Scheme, 2014.
Why many lose out on higher pension
Even though some are entitled to higher pensions on the strength of the SC verdict, a majority of subscribers in the EPS Scheme continue in the above low-return pension scheme. Millions of PF subscribers are not able to join the higher pension scheme since their employers do not remit the higher contribution. These include employees of major IT companies.
Even if their salary is high, the subscribers will get a pension for the small salary cap set by the EPFO for pension. The ceiling was Rs 5,000 from November 1995, Rs 6,500 from June 2001, and Rs 15,000 from September 2014. Out of this, 8.33% of the amount remitted by the employer towards PF contribution is shifted to the pension fund. The pension is disbursed using this amount.
A few illustrations
Take the case of a retied person with 29 years of service but a pension of only Rs 3,718. In the absence of the pension scheme, he/she would have received Rs 8.20 lakh; the monthly interest alone would then amount to Rs 5,467.
To get a clear idea of the loss being suffered, let’s calculate the figures of an employee who joined the service on the day of the introduction of the pension scheme, i.e. November 16, 1995, and retired from service in December 2022. The total service period is 27 years and one-and-a-half months. Those who have completed 20 years of service will receive a weightage of an additional two years. The sum contributed to the pension fund till December 2022 is Rs 2,38, 958. No interest is given for the share allocated to the pension fund, like that determined for the PF amount. Suppose this share is not transferred to the pension scheme and remains to be deposited in the PF account itself, the investment value, after calculating the PF interests of the respective periods, will cross Rs 7,22,000 by December 2022. Add to this the contribution by the Central Government, Rs 33,211, and interest, which comes to Rs 98,000. So, Rs 8.20 lakh in total.
If this amount is deposited in the bank at 8% interest, the beneficiary will get a monthly interest of Rs 5,467. Moreover, the deposit amount will be safe. At the same time, this individual will get a monthly pension of only Rs 3,718 from the EPFO. That means a monthly loss of Rs 1,749. Moreover, the subscriber won’t get back the deposit as well.
Some of those who retired may be receiving a little more than this amount as pension. But this is because they are subscribers of the Family Pension Scheme that existed before the introduction of the EPS in 1995, and hence entitled to a small additional sum, too.
If we consider the figures of those who retired on or before September 2014, then too the subscribers incur a loss on the pension amount. For a deposit amount of nearly Rs 3 lakh, they receive a monthly pension amount of just Rs 1,744 only.