EPFO’s Higher Pension Option Revived – Check If You Are Eligible

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EPFO Pension: The Employees’ Provident Fund Organization (EPFO) has made a significant move to clear up the ongoing confusion surrounding pensions. The organization has confirmed that the previous option of pension contributions calculated on the full salary will still be available. However, this is not a new addition, but a revival of an existing system. Importantly, this benefit will only be accessible to employees who chose a higher pension prior to 2014.

The pensionable salary limit was introduced in 2014.

In 2014, the central government established a minimum monthly pension of Rs 1,000. Concurrently, the maximum pensionable salary limit was set at Rs 15,000 per month. This created a cap on the maximum monthly pension of around Rs 7,500. Employees earning more than Rs 15,000 were also affected by this limit for pension calculations. This significantly lowered the future pension amounts, particularly for higher-paid employees.

How does the EPF and Pension System function?

According to EPFO rules, both employees and employers contribute 12% of their basic salary to the provident fund. A part of the employer’s contribution is allocated to the Employees’ Pension Scheme (EPS). Many companies usually calculate contributions based on a fixed salary threshold, rather than the full salary. This threshold was initially set at Rs 6,500, which was later increased to Rs 15,000. Since pensions are determined based on this pensionable salary, most employees end up receiving a limited pension upon retirement.

Before 2014, employees had the choice to make pension contributions based on their actual salary. This system was especially common in public sector undertakings (PSUs), where employers were more inclined to contribute additional amounts. In such instances, some employees received nearly half of their last salary as pension. However, following the implementation of the salary cap in 2014, this option nearly vanished, causing confusion even for those who had previously opted for it.

What has changed now and who will benefit?

The EPFO ​​has now clarified that employees who opted for a higher pension before 2014 will retain their rights. This means they can continue making pension contributions based on their actual salary, provided their employer agrees. Without employer approval, no employee can exercise this option on their own. This decision will provide relief to some employees in the organized sector and public sector enterprises, but its impact on most private sector employees will be limited. Overall, this decision is significant, but its benefits are likely to be limited to select members.

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