look news india
Employees’ Pension Scheme 1995 (EPS-95) has always been the biggest pillar of social security for crores of private employees and employed people working in the organized sector under the Employees’ Provident Fund Organization (EPFO). At present, the biggest complaint of private sector employees is that despite working for years and depositing huge funds in EPF, they get a very meager monthly pension on retirement. The biggest reason for this is the old fixed amount of EPFO. Wage Ceiling That means there is a salary limit.
In recent times, the demand by employee unions and social security experts to increase the wage ceiling from the current ₹ 15,000 per month to ₹ 25,000 per month and ongoing discussions at the level of the Labor Ministry have gained momentum. If the government approves this proposed wage limit, the maximum monthly pension may directly jump from ₹7,500 to ₹12,500 per month.
According to EPF rules, 12 percent of the basic salary and dearness allowance (DA) of any salaried employee is deposited in the Employees Provident Fund (EPF) account. The same amount (12%) is also given by the company i.e. the employer.
The employer’s 12 per cent contribution is divided into two parts: 3.67 per cent goes into the employee’s EPF account, while 8.33 per cent goes into the Employees’ Pension Scheme (EPS). Currently the wage ceiling is capped at ₹15,000 per month. This means that even if your actual basic salary is ₹50,000 or ₹1,00,000, the maximum contribution to the EPS fund is deducted at 8.33% of ₹15,000, which works out to a maximum of ₹1,250 per month.
Under EPS, the monthly pension received at the time of retirement is calculated using a certain formula:
Monthly Pension = (Pensionable Salary × Pensionable Service Period) ÷ 70
Under the current rules, the maximum pensionable salary has been fixed at a cap of ₹15,000. If an employee has completed maximum service period of 33 or 35 years (35 years of service is counted as 35 years by adding a grace period of 2 years), then the current math works out as follows:
-
Pensionable Salary: ₹15,000
-
Maximum service years: 35
-
Pension calculation: (15,000 × 35) ÷ 70 = ₹7,500 per month
That is, even after working honestly for 35 years and getting PF deducted every month, no employee is able to get a fixed pension of more than ₹ 7,500 in the current system.
If the recommendation to increase the salary limit from ₹15,000 to ₹25,000 is approved by the Central Government and the EPFO Central Board of Trustees (CBT), the entire pension structure will change.
After the implementation of the new salary limit, the company’s monthly contribution of 8.33 per cent towards EPS will be deducted on the basis of ₹ 25,000, which will be approximately ₹ 2,083 per month. Now let’s calculate under the same standard formula:
-
New proposed pensionable salary: ₹25,000
-
Maximum service years: 35
-
New pension calculation: (25,000 × 35) ÷ 70 = ₹12,500 per month
Thus, with this amendment in wage ceiling, the maximum pension will directly increase from ₹7,500 to ₹12,500. This will be a straight increase of ₹5,000 per month for employees who have worked in the organized sector for a long time.
Lakhs of workers are working in manufacturing, logistics, textile and services sectors in the country’s major industrial and IT hubs like Noida, Greater Noida, Ghaziabad, Gurugram, Delhi-NCR, Bengaluru, Pune as well as in cities like Kanpur, Lucknow, Meerut and Varanasi in Uttar Pradesh.
Most of the employees working in these cities have good gross salary, but due to low wage ceiling, their retirement fund is not safe. If the new wage limit is implemented, there will be a lot of stagnation in the livelihood of middle class employees working in these cities after retirement. With this, private sector employees at the local level will be able to get a respectable monthly social security cover like government employees.
There is another aspect of this change which is important for every employee to understand. When the wage ceiling increases from ₹15,000 to ₹25,000, the PF contribution will increase in companies where PF is deducted on the basis of ceiling limit.
The company’s share will go to the EPS fund at Rs 2,083 instead of Rs 1,250. At the same time, the employee’s share in EPF can also be deducted up to ₹ 3,000 (if calculated on ₹ 25,000 basic salary) instead of ₹ 1,800. What this simply means is that there may be a slight reduction in the employee’s ‘take-home’ or ‘in-hand’ salary every month, but in the long run, both their EPF corpus and pension fund will become much stronger.
This demand has been raised by labor organizations for a long time as the wage ceiling was last increased from ₹6,500 to ₹15,000 on September 1, 2014. There has been a huge increase in the inflation rate, minimum wages and average wage levels in the last decade, hence there is an urgent need to revise this limit under the Social Security Code.
However, it will be clear only after the official notification is issued whether these new rates will be compulsorily applicable to all existing employees or for this, employees and employers will be given the opportunity to choose the joint option as before.