Why in news?

A three-judge bench of the Supreme Court ruled in the matter where the Employees’ Provident Fund Organisation (EPFO) appealed various orders favouring employees issued by the Kerala, Rajasthan, and Delhi High Courts. The order provided relief to some employees.

Background:

• Thousands of working individuals who are eligible for pension under the Employees’ Pension Scheme-1995 (EPS-1995) of the Employees’ Provident Fund Organisation (EPFO) and those who already draw PF pension have been litigating in various courts for several years, seeking to invoke a provision in the scheme by which pension benefit can be substantially increased.

Why did the employees litigate?

• An option to increase pension is provided for in EPS-1995, for which 8.33% of the employer’s contribution to the employee’s PF account must be remitted into the pension fund on actual basic pay, dearness allowance and retaining allowance
• The request for a higher pension should be made in the form of an option exercised by both employee and employer
• But due to information asymmetry, most members did not exercise this option and have been contributing to the pension fund only within a salary cap (which was revised from 6,500 to Rs. 15,000 eight years ago), and not on actual pay. This reduced the pension benefit sharply
• The litigation by employees arose because the Union Government amended EPS-1995 effective September 1, 2014, introducing, among other changes, a time limit of six months for the members, jointly with their employers, to opt for higher pension based on their actual salary, and a further six months where reasonable cause for delay existed.
• The time limit was, however, not known to the employees as there was no communication to them

What is the impact of the order?

• The Supreme Court upheld the amendments to the pension scheme made by the government in 2014, which restricts even membership of the scheme up to a wage ceiling of 15,000. But it provided some relief to employees.
• The SC directed that members of the scheme who did not exercise the higher pension as before the 2014 amendment, entitled to exercise the option, jointly with their employers, even under the amended scheme.
• This right was upheld in the R.C. Gupta judgement, which said no cut-off date was envisaged in EPS-1995 serving employees can opt for higher pension now, transferring the stipulated part of the employer’s contribution to the pension fund.
• Other members who contributed to the fund beyond that date but retired, would have to remit the stipulated dues into the pension fund of the EPFO
• Court specifically excluded those who retired prior to September 1, 2014 without exercising the joint option in the unamended scheme, since they had already exited the membership. This part of the order covers older employees who get a meagre pension

How has the court responded to the government’s demands?

• Court granted partial relief to the employees, it also gave some consideration to the Union government’s argument that it would be stretched for funds to pay higher pension.
• The members opting for higher pension would, therefore, have to contribute an additional 1.16% on salary exceeding 15,000 as a temporary measure for six months, while the government came up with measures to augment its resources.

What is the overall course ?

• The court recognised the government’s powers to amend the pension scheme under Section 7 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
• Based on this recognition, the judges did not interfere with the revised formula used to calculate the quantum of pension .
• The Union government used the example of manual labourers to claim that wages could vary widely, and even be low in the final 12 months. Ironically, the case pertained to organised sector employees whose wages are highest in the last year or service.