Context:  The Supreme Court recently upheld the Employees’ Pension (Amendment) Scheme, 2014 as “legal and valid”.

Background

• The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 empowered the central government to frame a provident fund scheme.

In the year 1995, the government promulgated an ordinance for the implementation of the Employees Pension Scheme. 

• Employees Pension Scheme 1995 or EPS-95 is a social security scheme by the EPFO. The scheme entitles the employees working in the organised sector to a pension after their 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 the employee’s monthly salary (basic wages plus dearness allowance) to the Employees’ Provident Fund (EPF) scheme.

The pension scheme was initially applicable to employees who draw monthly basic wages up to Rs.6,500.

• The Union government in 1996 amended the act and allowed contribution to be a percentage of the actual salary (not necessarily up to Rs 6,500), provided the employee and the employer had no objection with approval from the Assistant Provident Fund Commissioner. 

The EPFO amended the act in 2014. This amendment had raised the pensionable salary cap to Rs 15,000 a month from Rs 6,500 a month, and allowed only existing members (as on September 1, 2014) along with their employers exercise the option to contribute 8.33 per cent on their actual salaries (if it exceeded the cap) towards the pension fund. 

• This was extendable by another six months at the discretion of the Regional Provident Fund Commissioner. 

• It also excluded new members who earned above 15,000 rupees and joined after September 2014 from the scheme completely.

• The ongoing legal dispute primarily concerned the amendments made to clause 11 of the EPS-1995.

• An appeal had been filed by the EPFO challenging the decisions of the Kerala, Rajasthan and Delhi High Courts quashing the 2014 amendments on the “determination of pensionable salary” under the Employees Pension Scheme (EPS) of 1995.

Supreme Court Judgement

• The Supreme Court of India upheld the Employees’ Pension (Amendment) Scheme, 2014 of the Employees’ Provident Fund Organisation as “legal and valid”.

• A three-judge bench headed by the Chief Justice of India UU Lalit also read down certain provisions of the scheme, allowing employees to avail of the benefit of the pension scheme which permits employers and employees to make uncapped pension contributions.

• The court used its extraordinary powers under Article 142 of the Constitution to allow eligible employees who had not opted for enhanced pension coverage prior to the 2014 amendments, to jointly do so with their employers within the next four months. 

• The court also struck down a requirement in the 2014 amendments that employees who go beyond the salary threshold of Rs 15,000 per month should contribute monthly to the pension scheme at the rate of 1.16% of their salary. 

• This provision made under the amendment scheme is held to be ultra vires to the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, and the court suspended the implementation of this part for six months.

• It is suspended to enable the authorities to make adjustments in the scheme so that the additional contribution can be generated from other legitimate sources within the scope of the Act, which could include enhancing the rate of contribution of the employers, the judgement said. 

• The court also held that the amendments would apply to the employees of “exempted establishments” in the list of the Employees’ Provident Fund Organisation (EPFO), which number over 1,300 companies and entities, in the same manner as for the staff of regular establishments. 

• Employees who retired prior to September 1, 2014, without exercising any option as per the 2014 amendment would not be entitled to benefit from this judgement.

Road Ahead

• The Supreme Court upheld the Employees’ Pension (Amendment) Scheme, 2014 while reading down certain provisions concerning the current subscribers to the scheme and also extended the deadline to join it. This ruling assumes significance as EPS is one of the largest surviving defined benefits schemes in the world.