If an employee is drawing a salary of more than Rs.15,000 per month and is an active member of the employees’ provident fund (EPF), then the government will not contribute to that person’s pension kitty from 1 September, the Employees’ Provident Fund Organisation (EPFO) said on Friday.
Every month, a salaried worker contributes 12% of the salary to EPF and the employer matches the investment. From what the employer contributes, 8.33% or Rs.541 (whichever is lower) goes into the xEmployees’ Pension Scheme, which offers pension for life after the age of 58 years.
The government contributes 1.16% to the pension kitty of every PF member as part the employees pension scheme (EPS) run by the EPFO, and this costs the government at least Rs.1,250 crore a year. With the wage ceiling enhanced from Rs.6,500 to Rs.15,000 for mandatory EPF compliance, this EPS contribution cost to the government can more than double.
“With effect from 01.09.2014, wherever employer and employees have opted to contribute on salary exceeding Rs.6,500 per month, such employer and employees will have to exercise a fresh option to contribute the government’s share of 1.16% on the salary exceeding Rs.15,000 per month from his/her contribution,” EPFO said in a circular to all its offices for implementation.
“This fresh option is to be exercised within a period of six months. It is essential to know with certainty the employees who are currently permitted to contribute to EPS on higher wages, so that fresh options can be called for,” said the circular issued by the pension department of EPFO.
EPFO said that if an existing contributor with higher salary does not exercise the fresh option that it agrees to pay the 1.16% of the government contribution to EPS, then his contribution will be diverted to provident fund from the EPS. “It may be made known to the existing optees that if the fresh option is not exercised it shall be deemed that the employee has not opted in allowing contribution over wage ceiling and the contribution to the employees pension fund made above wage ceiling in respect of the member shall be diverted to provident fund account along with interest as declared under the employees provident fund scheme from time to time,” the circular said.
Besides, an employee earning more than Rs.15,000 in his first job and becoming a PF member from 1 September will not have the option to participate in the employees pension scheme. “As EPS will henceforth apply only to EPF members whose pay at the time of becoming a PF member is not more than Rs.15,000 per month on or after 01.09.2014,” the circular said, adding that “the entire employer and employees contribution shall remain in the provident fund and no diversion shall be made to EPS for all new PF members on or after 01.09.2014 having salary (of) more than Rs.15,000 at the time of joining”.
The move on Friday follows a gazette notification on Thursday that enhanced the wage ceiling from Rs.6500 to Rs.15,000 for mandatory PF compliance. The government has also notified a minimum pension of Rs.1,000 or almost double what was prevalent under the EPS scheme. It will also be effective from 1 September. The step will benefit some 2.7 million pensioners including 500,000 widows. Overall, there are 4.4 million pensioners under the EPS run by EPFO.
EPFO has a subscriber base of more than 88 million workers, but around 42 million are active users or those who have been contributing to the fund up to the last two months. The organization manages a corpus of more than Rs.6 trillion. The annual PF accrual has grown 16.14% since the last fiscal year.
“We want more people to get PF and pension benefits. While the wage ceiling enhancement is a good move, government should not differentiate on who can or cannot join the EPS,” said D.L. Sachdeva, national secretary of the All India Trade Union Congress, a labour union.
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