The Employees’ Provident Fund Organisation (EPFO) has reinstated the earlier provision allowing pension contributions to be linked to full salary, offering relief to a limited category of subscribers. The benefit, however, will apply only to employees who had previously opted for higher pension contributions.
The move follows prolonged uncertainty after the pensionable salary was capped in 2014.
Pensionable Salary Cap Introduced In 2014
In 2014, the Centre fixed the minimum monthly pension at Rs 1,000 and capped the pensionable salary at Rs 15,000 per month. Consequently, the maximum monthly pension was restricted to approximately Rs 7,500.
Employees joining EPFO with salaries above Rs 15,000 were not permitted to opt for pension calculations based on their actual earnings, limiting retirement benefits for higher-income subscribers.
How PF And Pension Contributions Are Structured
Under EPFO norms, both employer and employee contribute 12 per cent of the basic salary towards the Provident Fund (PF). A portion of the employer’s contribution is allocated to the Employees’ Pension Scheme (EPS).
In most cases, PF contributions are calculated on the statutory wage ceiling rather than the employee’s full salary. The ceiling, which was previously Rs 6,500, was later increased to Rs 15,000.
As pension is determined on the basis of pensionable salary, most employees receive comparatively modest monthly payouts.
Earlier Provision For Higher Pension
Prior to the 2014 amendment, employees could choose to contribute towards pension based on their actual salary instead of the wage ceiling. This option was commonly exercised in public sector undertakings (PSUs), where employers agreed to make higher contributions. In some instances, pension payouts amounted to nearly half of the last drawn salary.
Following the 2014 cap, this option was effectively discontinued. There was also confusion regarding employees who had opted for higher contributions before the amendment, with reports indicating that in certain cases, higher contributions stopped for nearly two years.
What The Latest Clarification Means
The recent clarification restores the earlier provision permitting pension contributions based on actual salary. Officials have stated that this is not a new benefit but a reinstatement of the previous rule.
The facility is restricted to employees who had exercised the higher pension option before the 2014 amendment. It does not automatically extend to all EPFO subscribers.
Moreover, the option remains subject to the employer’s consent to contribute the higher amount. Employees cannot opt for enhanced pension contributions without employer approval.
Limited Impact Expected
While the decision is significant for eligible members, it is likely to benefit only a small segment of EPFO subscribers, primarily those in organised sectors or PSUs who had earlier chosen higher contributions.
For most private sector employees, where PF contributions are limited to the statutory wage ceiling, pension payouts are expected to remain modest.
