EPS-95 Pro-Rata Gimic of EPFO

During my reading on EPS-95 for educational purposes, bubbles of some questions arose in the mind regarding computation of pension, which is shared with you to have better guidance from experts for understanding the conception of justifiable calculation. The shared views are personal and presented here to get the true picture only, which please be noted by concerned.

The Employees’ Pension Scheme,1995 has been made in pursuance of Section 6A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

The Act originally did not provide for any pension scheme and Section 6A was introduced to the said Act by way of an amendment made in 1995. The amend-ment of 1995 contemplated formulation of a scheme for employees’ pension and the pension fund was to comprise of deposit of 8.33 per cent of the employers’ contribution made towards provident fund corpus as per the prevailing Statue. Paragraph 11 of the scheme dealt with determination of pensionable salary. At that point of time, maximum pensionable salary was Rs.5000/ and this sum had been enhanced subsequently to Rs.6500/. Pensionable salary was raised to Rs.15000/ by a notification dated 22nd August 2014 [numbered G.S.R. 609 (E)],which was to be effective from 1st September 2014. The Employee’s Pension (Amendment) Scheme,2014 brought into force by Notification No. GSR.609(E) dated 22.8.2014

The EPFO may have taken the wrong conception of the amendment made in EPS-95 in 2014. The method of computation of monthly pension in GSR609 and the EPFO circular as under:

The circular no. Actuarial 18(2)2008/Vol.III/7738 dated 29-08-2014 issued by EPFO.

“3. Accordingly with effect from 1st September 2014 the pensionable salary for all cases of exit/death on or after 01.09.2014 for calculating pension shall be the average monthly payment drawn during the contributory period of service in the span of 60 months preceding the date of death/exit from the membership of the Employees Pension Fund. The pensionable salary will be calculated on a prorate basis separately for the period up to 31.08.2014 up to the wage ceiling of Rs.6500/- per month and for the subsequent period up to wage ceiling of Rs.15000/- per month. Similarly the withdrawal benefit shall be based on the weighted wages on the different wage ceilings.

Here EPFO has introduced the word “separately” which is not any where in the Gazette!

G.S.R. 609(E).- In exercise of powers conferred by section 6A read with subsection (1) of section 7 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), the Central Government hereby makes the following Scheme further to amend the Employees’ Pension Scheme, 1995, namely:-

!. ‘ (I) This Scheme may be called the Employees’ Pension (Amendment) Scheme, 2014.

(2) It shall come into force on and from the 1st day of September, 2014.

2. In the Employees’ Pension Scheme, 1995, (hereinafter referred to as the principal Scheme), in paragraph 3, in subparagraph 2, in the proviso, for the words “rupees six thousand and five hundred”, wherever they occur, the words “fifteen thousand rupees” shall be substituted.

3: In the principal Scheme, in paragraph 6, in clause (a), after the words, figures and letter “or 27A of the Employees’ Provident Funds Scheme, 1952”, the words “and whose pay on such date is less than or equal to fifteen thousand rupees”, shall be inserted.

4. In the principal Scheme, in paragraph 11,-

(a) for sub-paragraph (l) and the proviso thereto, the following shall be substituted, namely:-

“(!) The pensionable salary shall be the average monthly pay drawn in any manner including on piece rate basis during contributory period of service in the span of sixty months preceding the date of exit from the membership of the Pension Fund and the pensionable salary shall be determined on pro rata basis for the pensionable service up to the 1st day of September,-2014, subject to a maximum of six thousand and five _hundred rupees per month and for the period thereafter at the maximum of fifteen thousand rupees per month:

Provided that if a member was not in receipt of full pay during the period of sixty months preceding the day he ceased to be the member of the Pension Fund, the average of previous sixty months full pay drawn by him during the period for which contribution to the pension fund was recovered, shall be taken into account as pensionable salary for calculating pension;

Conclusion:

(1) The first and foremost thing is that the pensionable salary will be the last contributed 60 months average salary. The definition of pensionable salary in the EPS95 Act also does not separate pre and post 2014 amendment but only the average of the last 60 months salary up to certain cap.

(2) The maximum salary up to 01.09.2014 is Rs.6500/- and Rs.15000/- thereafter. The pensionable salary will be prorate for this period.

(3) This prorate calculation occurred only if the bifurcation date 01.09.2014 falls within the span of the last 60 months.

(4) There is no mention of “separate” calculation for pre and post attainment of superannuation w.r.t. 01.09.2014. But only pro-rata word is used in this GSR. But EPFO calculates the pension separately for pre and post 01.09.2014 period to arrive at the final pension amount. 5/8

(5) If we understand the statistics of last 60 months average salary with respective cap of 6500 and 15000, the pro-rata is already implemented in the calculation of average itself. There is no need to bifurcate the whole formula calculation into two parts.

(6) Wherever and whenever EPFO has presented the EPS95 pension calculation (including Sansad), it has described only the formula given in the para 12 of EPFO act only with 60 months average salary as pensionable salary without any mention of separate calculation for pre and post 2014 amendment. Monthly member’s pension = Pensionable salary X Pensionable service / 70

(7) In the average of last 60 months salary , up to 31-08-14 maximum 6500 and thereafter 15000 is to be taken.

So,

if someone retired on 31-08-14, maximum pensionable salary will be 6500*12/12=6500.

If someone retired on 31-08-15, maximum pensionable salary will be ((6500*48)+ (15000*12))/60=8200.

If someone retired on 28-02-17, maximum pensionable salary will be ((6500*30)+ (15000*30)/60=10750.

If someone retired on 31-08-18, maximum pensionable salary will be ((6500*12)+ (15000*48))/60=13300.

If someone retired on 31-08-19 or after, maximum pensionable salary will be 15000*60/60=15000.

In this situation pro-rata up to and after 31-08-2014 arrives only in the case where the date 31-08-2014 falls within the span of the last 60 months.

It is justifiable that if someone retired in October 2014, then he should not get pension on 15000 whole. But after completion of 60 months, a very long period, there is no question of separate calculation !

The restoration of full pension after some period is also based on this line length.

This is not the first time the EPFO has taken wrong conception in the computation.

In the EPFO circular No: Pension Pen-I/3/4/2016/MOL&E/2/2832 dated 08-05-2017 regarding benefit of 2 years weightage of service to the members with 20 years or more pensionable service under para 10(2) of EPS95.

“Para 10(2) of EPS, 95 was amended vide G.S.R. 546 (E) dated 23.06.2009 (w.e.f.24.07.2009). After amendment the Para 10 (2) reads as under:-

In the case of the member who superannuates on attaining the age of 58 years, and who has rendered 20 years pensionable service or more, his pensionable service shall be increased by adding a weightage of 2 years.”

Here also only an addition of 2 years weightage to the pensionable service is described. The addition to pre or post 2014 is not described anywhere in the law. It is also evident that there is no separate calculation of pensionable service/salary for pre and post 2014 amendment.

But EPFO calculates 2 years weightage to the pensionable service before 2014 by their own conception without any lawful evidence.

Para 9 of EPS 1995,

“9. Determination of eligible service.

The total contributory service shall be rounded off to the nearest year. The fraction of service for six months or more shall be treated as one year and the service less than six months shall be ignored.”

In the above para total contributory service period is mentioned in years without breaking and making two separate parts of pre and post 2014 amendment.

As per para 9 of EPS 95, the service period must be in years. The rounding method is also given for rounding off to nearest years. The formula of para 12 ibid also in years. There is no mention to calculate in days in the act. But EPFO calculates the EPS95 Pension in days. Available calculator on website and also their system Software calculates the pension in days.

At the early Pension start date if age is 51 years 6 months 20 days, reduced pension should be factored by 0.7828 of 52 years and not by 0.7514 of 51 years. But EPFO calculates for 51 years.

In the EPFO circular pension/5(6)//2001/TN/ 55294 dated 17-08-2008 regarding date of commencement of early Pension “The issue in principle has been decided vide this office circular No. Pension/5(6)/2002/TN/main/36144 dated 07.09.2007. However, past cases need not be reopened, but if the pensioner insists for the change in the view of the above circular, his request may be considered.”

What we conclude from the above circular is that EPFO gives benefits of actual pension as per norms if the pensioner insists for that!

Now, coming to the recent burning sensation of Higher pension i.e. pension on Higher Wages. As per the old school of wrong and misconception of calculation, it continues in the case of pension on higher wages also.

As mentioned in the Judgement of the Hon’ble Supreme Court of 4th November, 2022 on Page 31 & 32:

“It is, however, contention of the appellants that the amendment had extended the period prescribed in Paragraph 12(1) from 12 months prior to a member’s exit from the Pension Scheme to 60 months. This, according to appellants, has been done to achieve a clearer picture of the Pensionable Salary to eliminate the possibility of fluctuations in pay drawn in the last 12 months for determining the quantum of Pension. Illustration has been given of manual laborers and women drawing low wages, who may suffer such fluctuations on account of ill health, incapacitation etc., and in the case of such employees, if only 12 months’ pay is accounted for, they may get reduced Pension.”

Page No: 61 & 62 of the Judgement of the Hon’ble High Court of Kerala on 12th October, 2018 which was upheld by the Hon’ble Supreme Court on 1st April, 2019:

EPFO version as mentioned in the Judgement:

“A cursory perusal of the salary details and contributions received by the Employees’ Provident Fund Organisation (EPFO in short) in one of the cases revealed that the employer was contributing to the Pension Fund on his (Employee) on Wages ranging from 59,595/- (100%) to 1,02,971/- (173%) during the “five” year period. The range of salary for the 12 months preceding the date of retirement is 93,000/-(100%) to 1,02,971/-(111%). The quantum of Pensionable Salary and Pensionary benefits on the basis of average for the 12 months preceding his retirement in such cases will be “very high” and the Pensionary benefits will not be commensurate with the contribution received by the EPFO.”

EPFO version on Page No: 12 of the 427 Page Affidavit submitted by EPFO before Hon’ble Supreme Court in 2021:

“The objective of this amendment is to achieve a “truer picture” of the pensionable salary so that fluctuations in the wages drawn in the last “12” months do not affect determination of Pension. This is especially crucial for manual labour, women etc. who may suffer such fluctuations on account of ill health, incapacitation etc. It also prevents artificial inflation of wages in the last “12” months for increasing the Pension.”

In none of the above versions there is no mention of Prorata calculation for Pension on Higher Wages.

EPFO circular No. Pension/ SC/ Higher Pension/ 2022/ 1357 dated June 1, 2023 regarding method of computation of pension.

“Please refer to the Circular No. Pen-sion/Supreme Court judgment/POHW/2022/143 dated 09.05.2023 regarding “Deposit/ Transfer of due contribution with interest into Pension Fund” wherein it was informed in Para 14 that the method of computation of Pension will follow 8/8 through subsequent circular.

In this regard…The computation of pension shall be in accordance with the provisions of Employees’ Pension Scheme(EPS), 1995 as follows:-

For eligible cases:

where date of commencement of pension is prior to 01.09.2014: Pension shall be calculated based on average monthly pay drawn during contributory period of service in the span of 12 months preceding the date of exit from the membership of the pension fund.

where date of commencement of pension is post 01.09.2014: Pension shall be calculated based on average monthly pay drawn during contributory period of service in the span of 60 months preceding the date of exit from the membership of the pension fund.”

In this circular there is clear cut guidance to calculate pension on either 12 months or 60 months average salary for respective periods without prorate basis calculation.

In the reply to RTI in September 2023 No. MP/IND/RTI/196/2023-24/275 dated 05-09-2023 also, EPFO replied that pension will be calculated as per EPS95 Scheme para 12 and above circular dated 01-06-2023 issued by Head office Delhi.

But without any lawful evidence of separate calculation, the EPFO issued internal mail on 14- 02-2024 to calculate higher pension on prorate basis. And one pensioner has filed a petition against it in Kerala High court, the final verdict is awaited. Hope for the best justice delivered in time.

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