EPS Pension Hike : Millions of organized sector workers in India secure their retired life through the Employees’ Pension Scheme (EPS), and the EPS is set to see a major overhaul that has the potential to augment pension amounts significantly for a greater number of working population.
These changes, which have been made owing to both new policy decisions and court rulings, will overhaul the way pensions are calculated and could technically bring a great deal of financial help to pensioners who have witnessed their fixed incomes being ravaged by inflation for years.
These 65 lakh EPS pensioners and millions more to come need to know this when planning their finances to ensure they get their full entitlements.
This detailed analysis covers the changes to the pension scheme, who will be eligible, the process for how it will be rolled-out, and what pensioners will need to do to reap the rewards of these improvements.
Table of Contents
EPS Pension Hike The New Pension Calculation Formula: What It Means
The increase in the pension amount has been largely due to changes in the calculation formula after several court cases, including one in the Supreme Court, directed the Employees’ Provident Fund Organisation (EPFO) to reconsider certain formulas for determining pensions.
According to the new model, the pension amount will be determined with numerous consequential modifications:
Consideration of Higher Wage Ceiling: Earlier the pension was based on a wage ceiling of Rs.p 15,000 per month.
The revised rules will let eligible members be paid pensions based on their higher last wages, so some with pay far above the ceiling could get higher pensions as a result.
Altered Calculation: The revised formula considers:
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Pensionable salary (last 12 months basic pay+dearness allowance)
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Past Service (years) (not to exceed 35)
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An adjusted rate of earning of pension that gives more benefit for longer serve period
Service weightage changes – More percentage increase for more than 20 years service, pushing up benefits for employees who have spent long time in employment.
I have retired in the month of Dec 2010 from Pvt Factory, Pune(post of Supervisor), I was getting pension Rs.2,800/month, after recalculation now my pension is Rs.9,200/Month which I am getting, this is the big jump I can say, they have counted my pension on my actual salary not on capped salary.”
This makes all the difference in the world to me and my wife at this point in our lives.”
For an average employee retiring after 30 years of service at a final basic salary of Rs 25,000, pension under the old formula may go up to Rs 7,800 from Rs 3,250 under the revised calculation – a rise of 140%.
But Who Is Eligible to the Higher Pension: Categories of Eligibility
The pension enhancement is not universal; eligibility falls into multiple buckets:
Category 1: Retired before September 2014, contributed on real wages Retirees who retired before September 1, 2014, and for whom the employer contributed to EPS based on their real higher wages (above the wage ceiling), may have their EPS recalculated based on the new formulas.
These recipients must apply for a recalculation and provide proof.
Category 2 – Enhanced contributionThey did not opt into EPS (Category 3 below) during the time they have been contributing (previously you could either opt to contribute the capped amount, or apply the formula which will contribute more based on your actual wages).
The result?Upon retirement, active members who had been applying theformula will benefit from the enhanced formula. This category will have to ensure that its option form is correctly captured by the EPFO.
Category 3 – Members who have applied recently under the 4-month window The EPFO, post the Supreme Court ruling, had opened a window of four months (ending March 3, 2023) for the eligible members to choose higher pension.
Those who filed successfully during this time will obtain pensions based on their higher actual salaries.
Category 4: For those seeking joint options after the cutoff deadline Persons who are members of the EPFO and could not make their application for a joint loved ones or higher contribution due up untill March 2023 can apply separately with EPFO which will consider such case-to-case on the merit of the case and the previous efforts by the individual.
As labor law specialist Vinod Mehta, who assists pensioners with their entitlements explains, the biggest gains would be made by those who contributed to their pensions on higher incomes, but whose payouts have been calculated at a certain point.
Others could have their pensions tripled or quadrupled — but they would have to make additional contributions to fund the shortfall, with interest.
EPS Pension Hike When and How it Will Operate
The EPFO has introduced a four-phase sequence for the pension re-calculations:
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Phase 1 (Complete): Handling of higher pension applications filed during a four-month period that expired on March 3, 2023.
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PHASE 2 (ONGOING): Validation and approval of applications for pension revision for eligible pre-2014 retirees to commence payments on staggered basis.
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Stage 3(Activity: From August 2023): Payment of revised pension for gianted categories, and closure of pending court cases.
The process for applying differs based on the category:
For retirees who are already receiving a pension and wish to have it recalculated:
Send the filled up Form 10(D) to any of the EPFO regional office.
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Submit the payslips and the contributions history for that un accounted higher earning period.
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Add employer attestation to increased contributions if applicable.
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provide for processing of pensions payment instructions and banking details
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For members who were active and chose higher contributions:
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Check whether their joint option form is duly recorded in EPFO records
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Verify that the additional contributions due have been computed correctly.
Because they didn’t properly document the amount of their actual wages during the whole contribution period.
When Sunita Rao recently helped her retired husband negotiate the application process, she found: “Duplicate copy of all documents especially of salary slips and any communication with EPFO on higher contributions must be kept.”
Patience is the name of the game here but the cold hard cash when you finally deduce the answer is worth the effort.”
EPS Pension Hike Financial Ramifications: Excess and Arrears
Though the pension bumps are significant, they also add to the beneficiaries’ financial responsibilities:
Additional Contribution Requirement: Those who are eligible for high pension benefit must pay the difference between the contribution paid and what should have being paid on actual higher wages along with interest till date.
Calculation of Difference in Contribution: First difference is calculated as:
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8.33 % of salary over the former, for the period concerned.
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EPF interest rate as interest for all case years.
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Possible reductions for employer contribution already received
Payment of Arrears : Arrears from the date of eligibility (normally date of retirement) or from a date as per court order will be paid to the beneficiaries.
Prakash Iyer, who retired as a bank manager in 2013, shares: “A differential contribution along with interest, amounting to Rs 2.8 lakh, was to be paid by me to get my recalculated pension of Rs 12,400 in place of the Rs 3,850.”
The upfront payment was a lot to me, but the higher monthly pension would recover that in under a year.”
EPS Pension Hike Challenges and Concerns about Use
Sure, many pensioners are better off – but as implementation continues the following problems are becoming apparent:
Documentation challenges: Many retirees find it difficult to obtain full records of their earnings and contributions from many decades ago, especially if former employers have gone out of business or restructured themselves.
Processing delays: Most applicants are experiencing delays of more than six months due to the sheer volume of applications at some of the EPFO offices.
Calculation disputes: In some cases, disputes about how to calculate differential contributions and interest have resulted in appeals and court cases.
Employer resistance: There has been employer resistance to certifying higher previous contributions which is blocking potentially eligible pensioners.
For higher pension related issues EPFO has also launched a special grievance resolution mechanism, in which dedicated desks are assigned at its regional and sub-regional offices and an online registration port to check the status of the application.
EPS Pension Hike Looking Ahead: What Pensioners Can Do Now
For people who think they may be eligible for the enhanced pension, here are some steps experts recommend they take:
Document collection: Collect all salary statement, contribution statement, communication with EPFO on pension options during your employment.
Eligibility verification- None other than EPFO helpline and pension experts, please check (courts judgements/revised rules) whether on your own facts if at all you are eligible.
Contribution gap calculation: Apply for a preliminary calculation of any extra contributions needed to allow time for financial planning before you apply formally.
Employer coordination: Follow up with past employers for verification of increased income and contributions as needed for application.
Submission: Fill out the application forms as per the category of your application, and attach all the supporting documentations.
V.K. Sharma, a retired EPFO official who now helps pensioners in claim settlements, has this perspective: “The increased pension is a much-needed correction, a longpending issue that the higher-salaried employees were getting a disproportionately low pension. “
If you are eligible the short-time inconvenience is worth it on the long-term financial gain for your family,” The Age reports.
As we move along with the implementation, you can expect more clarifications and simplification of processes from the EPFO, especially in those places where the cases are in gray areas.
Pensioners are requested to check their accounts and get further details from official website of EPFO and not to respond to the unofficial sources and news that may be incomplete or incorrect information on this matter of crucial enhancement of pension.
