EPFO: There’s some significant relief for private sector employees. The Employees’ Provident Fund Organization (EPFO) has reinstated the old provision for higher pensions. This will allow some employees to reinstate the option of contributing more to their pension based on their actual basic salary and dearness allowance.
Before September 1, 2014, employees had this option, but they could make pension contributions based on their actual salary rather than the prescribed salary limit. PSU employees, in particular, took advantage of this facility. However, in 2014, the government set a maximum pensionable salary limit of Rs 15,000. The minimum monthly pension was set at Rs 1,000, and the maximum pension was limited to approximately Rs 7,500. This effectively eliminated the option of making higher contributions based on actual salary.
What has changed now?
In the new change, EPFO has clarified that this is not a new scheme, but rather a reinstatement of an existing provision. Now, employees who had opted for a higher pension before September 1, 2014, will again be able to contribute based on their basic salary.
However, this facility will not apply to all members. Only those employees who had previously opted for this option and whose employers have agreed to contribute more will be able to take advantage of it. Employees who earned salaries above this limit after 2014 cannot base their pension contributions on their actual basic salary, limiting their potential pension benefits.
What are the current rules for EPF and EPS?
According to current rules, both the employee and the employer contribute 12 percent of their basic salary and DA to the EPF. Of the employer’s share, 8.33 percent goes to the Employees’ Pension Scheme, while the remaining 3.67 percent is deposited into the PF account. Pension calculations are based on the pensionable salary, which is currently capped at Rs 15,000. Consequently, most employees receive limited pensions.
Who will benefit from these changes?
This restoration is primarily believed to benefit employees in the organized sector or PSUs who opted for higher pensions before 2014. New employees or those whose contributions have been based on the fixed salary limit will not automatically benefit. Experts believe this move will address some of the confusion that has persisted since the salary limit was established in 2014. However, it is also believed that its impact will be felt only by a limited number of people.
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