Supreme Court Order on EPFO

Why in news?

The Supreme Court has upheld a Kerala High Court judgment against the Employees’ Provident Fund Organisation (EPFO).

What is the case about?

The Employee's Pension (Amendment) Scheme, 2014 was brought in force through a notification.
As per the amendment, new members who joined EPF after Sept 1, 2014 with a basic salary of over Rs 15000 per month were excluded from the EPS.
The Kerala High Court had struck down this amendment.
It held that restricting the pension contribution to Rs 15000 criteria was arbitrary.
Further, employees were allowed to choose to contribute to pension on higher pay at any point in time and the timeline to exercise such option.
The EPFO's appealed against the order of the Kerala High Court.
The Supreme Court has now upheld the Kerala High Court judgment.

What is the possible implication?

As a consequence of the judgement, certain amendments to how pensions have been calculated will be struck down.
The pension may be calculated on the basis of average salary of last 12 months and not 60 months which was the basis till now.
This would result in increase in pension for employees who have already contributed to pension on full pay in the past.
This is because most people draw highest salaries near the end of their careers i.e. just before retirement.
Consequently, those who had a particularly high previously drawn salary and several years of service might see their pension raised by as much as 1,000%.
The ruling also allows all existing members of EPFO to avail the option of contributing on full basic pay, to get a higher pension in the future.
The Supreme Court order may also open the doors for employees who were till now excluded from EPS to join the scheme.
However, the EPFO is yet to come out with its view on the impact of the SC ruling.
It will now have to clarify if employees having basic pay exceeding Rs 15,000 can enrol them for the EPS scheme.

What are the concerns?

Opening the scheme to those hitherto excluded is naturally not in keeping with the ethos of the provident fund.

It's because the basic objective of provident fund has always been to help the saving and retirement of those at the lower rung of the formal sector.
There is also the concern as to where the money to pay the much larger pensions will come from.

Besides these, the SC's judgement appears to be an instance of legislative over-reach.
The structure of the pension plan, the profitability and sustainability of the scheme, etc are to be determined by the executive.
It is the executive that has to decide the proper distribution of subsidies and taxes.
Notably, the support provided to state-guaranteed pension funds are nothing but a subset of this fiscal decision.
So naturally, the executive, and not the judiciary, should decide on the trade-offs that determine who benefits from guaranteed pensions.
It is also entirely the executive’s decision to decide on how to spend the tax revenue.
Here, the executive may see pensions as less effective use of tax revenue than, say, health care.
So rational analysis by the executive is the best way for deciding on what proportion of an employee’s earnings should mandatorily be saved.

Source: Economic Times, Business Standard

Author: Shankar IAS Coaching Center Trichy