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NEW DELHI: In a relief to lakhs of subscribers, the Supreme Court on Friday held that the Employees’ Provident Fund Organisation (EPFO) cannot seek an additional contribution of 1.16% of the salary from those drawing over Rs 15,000 without the government amending the law and opened a four-month window for the members of the retirement savings body to exercise the option of getting pension on higher earnings.

While the bench of Chief Justice U U Lalit, Justices Aniruddha Bose and Sudhanshu Dhulia upheld the validity of the 2014 amendments, it also said that the benefit of higher pension option should be given to members of “exempted trusts” too, subject to certain conditions.

EPFO offers provident fund and pension scheme for its subscribers. From September 1, 2014, members were allowed a maximum pensionable monthly salary of Rs 15,000 instead of Rs 6,500. For those with a higher salary, an option was given to contribute 1.16% of the salary exceeding Rs 15,000 to get the benefit of higher pension. And, the option had to be exercised within six months from the date of the new scheme coming into effect.

While undertaking the amendments, EPFO also changed the rules to provide that the pensionable salary will be the average monthly pay drawn during the 60 months prior to the exit, instead of 12 months earlier. The court held that the government body was within its rights to make the changes. At the same time, it held that the mandate to make an additional contribution of 1.16% could not be exercised without amending the law.

Employees, some of whom were led by advocate Udayaditya Banerjee, said there was no additional burden imposed on the provident fund authorities or the Centre if the earlier system continued. Banerjee contended that entry into the hybrid regime of provident fund plus pension beyond ceiling limit only entailed switching of funds and the authorities had to remit the 8.33% from the employer’s share of the contribution lying in the provident fund corpus to the corpus of the pension fund.

“The requirement in the scheme for employee’s contribution to the extent of 1.16% for opting members, in our opinion, is illegal. There is nothing in the 1952 Act which requires payment to the pension fund by an employee… Since the Act doesn’t contemplate any contribution to be made by an employee to remain in the scheme, the Centre under the scheme itself can’t mandate such a stipulation… in our opinion, a legislative amendment of the Act would have been necessary, providing for contribution to be made by an employee,” it said.

“Besides providing clarity on the legality of changes made in the pension scheme, the order also paves the way for the operational aspects to implement the changes,” said Kuldip Kumar, partner at consulting firm Vialto Partners India.

Adjudicating a batch of over 60 petitions filed by the Centre, EPFO and various employees, the bench held that the 2014 amendment to the pension scheme will apply to employees of the exempted establishments in the same manner as those of regular establishments. The court said there was no cutoff date to be contemplated prior to the 2014 amendment and limiting entitlement of enhanced pension coverage to only those employees who had exercised an option under Clause 11(3) of the unamended scheme would be contrary to previous judgement of the court.

In case of exempted trusts, the employers and employees will have to give an undertaking to transfer the former’s contribution at the stipulated rate, which are maintained with the trust, to be equivalent to, and not lower than the sum which would have been transferable if the funds had been kept with the PF authorities.

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