EPFO Higher Pension Scheme: Guidelines, Form, Calculation, Formula, Eligibility, Benefits

Latest Update:

EPFO extended the last date to file the higher pension application or joint option form to 26/06/2023. 

Employees’ Provident Fund Organisation (EPFO) members are entitled to a pension after retirement. Currently, the employees and employers contribute 12% of their basic salary and dearness allowance to the EPF. Of the employer’s 12% contribution, 8.33% goes to the Employees’ Pension Scheme (EPS) and 3.67% to the EPF.

However, the 8.33% EPS contribution is capped at the maximum amount of Rs.15,000 even when the employee draws a higher salary. The cap on the EPS contribution was introduced in 2014 through an amendment to the EPS.

Before the EPS amendment in 2014, employees had the option to choose higher EPS contribution amounts. This article covers the EPFO circular on higher pensions and its claim process.

What is the EPF higher pension scheme?

In 1995, the Government introduced a pension scheme under Section 6A of the EPF Act. The Employees Pension Scheme, 1995 (EPS-95) provided that the employer’s contribution of 8.33% should be towards the pension scheme. The EPS-95 capped the maximum monthly pension at Rs.5,000 or Rs.6,000. Thus, employers had to contribute 8.33% of Rs.5,000, which was later raised to Rs.6,500, towards the pension scheme.

In March 1996, a provision was added to para 11(3) of the EPS-95, giving the employer and employee an option to contribute 8.33% of actual salary (above the cap of Rs.5,000 or Rs.6,500) to the EPS. Such a higher salary would be considered a pensionable salary. However, the EPFO gave six months for the employees to file a joint option form for higher pension contributions to the EPS.

The government amended the EPS-95 scheme effective from 01/09/2014. It increased the maximum pensionable salary to Rs.15,000. It also omitted the provision to para 11(3), i.e. exercise of the option by the employer and employee to contribute EPS on a higher salary amount.

Thus, employers would make an EPS contribution of 8.33% on a maximum of Rs.15,000 for the employees joining the EPF scheme after 01/09/2014, even when they draw a higher salary.

However, the employees who were part of EPS-95 or joined before 01/09/2014 could contribute 8.33% to EPS on the actual salary as against the cap of Rs.15,000 if they filed a new joint option with the EPFO within six months, i.e. 28/02/2015.

Higher pension contribution under EPS

There were issues after the 2014 amendment regarding pension contributions on higher salaries. Many employees stated that they did know about the exercise of the joint option for contributing pension on the higher salary amount. The EPFO rejected the joint option filed by many employees. Employers contributed 8.33% of pension on employees’ actual salaries without filing the joint option, but the pensionable salary was taken as Rs.15,000 for pension calculation.

Thus, many employees filed cases in High Courts for receiving higher pensions based on the contributions made on actual salary amounts. The Supreme Court took up this matter. The summary of the Supreme Court decision is as follows:

Status of Employee

Exercise of joint option 

Eligibility to claim 8.33% pension contribution on a higher salary

Mode of higher pension claim

Employees in service as on 01/09/2014 

Exercised joint option and rejected by the EPFO 

Yes 

By filing a higher pension claim application

Employees in service as on 01/09/2014 

Not exercised joint option but contributing to EPS above the cap of Rs.5,000/Rs,6,500

Yes

By exercising the joint option 

Employees retired before 01/09/2014

Exercised joint option and rejected by the EPFO

Yes

By filing a higher pension claim application

Employees retired before 01/09/2014

Not exercised joint option 

No

Not applicable

The Supreme Court provided that employees who were part of the EPF before 01/09/2014 but have not exercised the joint option can exercise it within 03/05/2023. The EPFO further extended the due date to 26/06/2023. For such employees, a higher EPS contribution will be calculated from the date of their joining. 

For example: 

·        Mr. ‘X’ became a member of the EPF in 1998.

·        He has not exercised the joint option.

·        His salary increased to Rs.50,000 in 2015.

·        His employer contributes Rs.6,000 (i.e. 12% of his basic wage) towards EPF. 

·        Of the employer’s contribution, Rs.1,250 (i.e. 8.33% of Rs.15,000; the statutory wage cap) will go to the EPS. 

·        The remaining Rs.4,750 (i.e. Rs.6,000 - Rs.1,250) will go to the EPF. 

·        He exercises the joint option within 26/06/2023 as per the Supreme Court judgement since the EPS contribution is above the statutory wage cap of Rs.6,500.

·        After submitting the joint option, his employer will contribute Rs.4,165 (i.e. 8.33% of Rs.50,000; his actual salary) and Rs.1,835 (Rs.6,000 - Rs.4,165) towards EPF.

·        The EPFO will calculate the monthly EPS amount of 8.33% of the actual salary and transfer the difference amount from the EPF to the EPS.

In such cases, the EPFO will return to the joining date or 01/11/1995, whichever is later, and transfer the difference from the PF account to the EPS account. But, the higher pension contribution will reduce the EPF lumpsum corpus that the employee gets upon retirement.

Higher pension scheme application last date

Initially, the EPFO stated that the last date to apply for the higher pension scheme is 3rd May 2023. But, it extended the last date due to several representations. Thus, the last date to apply for higher pension scheme is 26th June 2023.

EPF higher pension eligibility

EPFO issued a circular in December 2022 providing the eligibility criteria and application process for claiming a higher pension. Below are the eligibility criteria for a higher pension:

·        The employees retired before 01/09/2014.

·        The employees exercised the joint option under para 11(3) of EPS-95 while being a member of EPS-95.

·        The employees and employers contributed EPS on salaries exceeding the wage ceiling of Rs.5,000 or Rs.6,500.

·        The EPFO declined the exercise of such an option.

However, the EPFO circular did not provide a higher pension option for employees who were part of the EPF before 01/09/2014 but still working/retired after 2014. As per the Supreme Court judgement, such employees were also eligible to claim a higher pension.

Thus, the EPFO issued another circular in February mentioning higher pension eligibility criteria for employees in service/retired after 2014. Below are the eligibility criteria to file a joint option for getting a higher pension:

·        The employees who were members before 01/09/2014 continued to be members after that date.

·        The employees and employers contributed to EPS on salaries exceeding the wage ceiling of Rs.5,000 or Rs.6,500.

·        The employees and employers were members of EPS-95 and did not exercise the joint option provided under the deleted para 11(3) of the EPS and amendment of 2014.

However, employees who were members of EPS-95 and exercised the joint options under the deleted para 11(3) of the EPS but did not file new joint options after the amendment of 2014 are not eligible to claim a higher pension. The EPS contributions of such employees will be 8.33% on the maximum amount of Rs.15,000, irrespective of their actual salaries.