Time to streamline the provident fund pension scheme

January 18, 2023

General Studies Paper 2

Context

70 lakh pensioners are still waiting for higher pension under the Employees’ Pension Scheme (EPS), 1995. The Supreme Court reiterated, as a matter of principle, its approval of the idea of higher pension.

Elderly Population:

The National Elderly Policy defines people in the 60+ age group as elderly.
According to the Population Census 2011, there are nearly 104 million elderly persons in India.

Problems associated with old age:

Social: The traditional values and institutions are in the process of erosion and adaptation.
Financial: Retirement and dependence of elderly on their child for basic necessity.
Health:
- Multiple disabilities among the elders in old age.
- Among persons aged 60 and above, 30% to 50% (depending on gender and age group) had symptoms that make them likely to be

Employees’ Pension Scheme (EPS):

It is a social security scheme provided by the Employees’ Provident Fund Organisation (EPFO).
The scheme was first launched in 1995.
It makes provisions for pensions for the employees in the organized sector after the retirement at the age of 58 years.
Employees who are members of EPF automatically become members of EPS.
Both employer and employee contribute 12% of employee’s monthly salary (basic wages plus dearness allowance) to the Employees’ Provident Fund (EPF) scheme.
EPF scheme is mandatory for employees who draw a basic wage of Rs. 15,000 per month.
Of the employer’s share of 12 %, 8.33(eight point three three)% is diverted towards the EPS.
Central Govt. also contributes 1.16(one point one six)%of employees’ monthly salary.

What is the current Issue?

Circular by Employees’ Provident Fund Organisation (EPFO): The circular covers only a segment of pensioners-subject to certain conditions.

Background:

In 2005: Section of Himachal Pradesh Tourism Development Corporation staff demanded higher pension.
The employer had made the 12% mandatory contributions on their actual pay, which exceeded the statutory ceiling
entitled to the benefit of the deposit of 8.33(eight point three three)% of their actual salary in the Pension Fund.
Employees along with their employer did not exercise their option within the cut-off date.
In 2016: Court rejected the EPFO’s notion of a cutoff date.

- It held that the cut-off date, as in the EPS rules, was meant to calculate the pensionable salary only.

Conditions imposed by circular of EPFO:

Reason for reluctance by PF authorities:

Apprehension over the sustainability of the pension fund
Those receiving lower pension have to cross-subsidise pension payouts for those getting or likely to get a higher pension.
Factors such as:

- rising actuarial shortfall, lower rate of returns and increasing longevity of pensioners may lead to the situation of pension payouts outstripping receipts.
- According to the EPFO: It will go against social security.

Initiatives by government for elderly:

Way Forward

Much of the confusion among pensioners could have been avoided had they been proactive in sharing information or explaining the position to those concerned.
On the policy front: The Government and the EPFO should increase the minimum monthly pension of ₹3,000 against the existing ₹1,000.

- It will address the grievances of pensioners who were in the lower wage bracket.

EPFO can give a one-time opportunity to all those in the higher wage group who retired in Dec 2004 without exercising the option.
Government should substantially increase its financial support.
Code on Social Security, 2020: It can have a scheme for those youngsters who have got jobs after September 2014 who have been left out of the EPS on account of their higher wages.