Employee's Pension Should Be Proportional to Salary: SC

In a major relief to many employees, the Supreme Court has dismissed the Special Leave Petition (SLP) filed against a Kerala High Court judgment setting aside Employee's Pension (Amendment) Scheme, 2014, that capped maximum pensionable salary to Rs.15,000 per month.

The bench comprising the Chief Justice of India Ranjan Gogoi, Justice Deepak Gupta and Justice Sanjiv Khanna in limine dismissed the SLP filed by Employees Provident Fund Organisation (EPFO) observing that it does not find any merit in it.

The Kerala High Court, in October last year, had allowed the writ petitions filed by employees of various establishments covered by the provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. Their grievance was with the changes brought about by the Employees' Pension (Amendment) Scheme, 2014, which drastically reduces the pension payable to them

Employees' Pension (Amendment) Scheme, 2014

The amendment had brought these changes in the pension scheme.

* Limits the maximum pensionable salary to Rs.15,000 per month. Prior to the amendment, though the maximum pensionable salary was only Rs.6,500 per month, the proviso to the said paragraph permitted an employee to be paid pension on the basis of the actual salary drawn by him provided, contribution was remitted by him on the basis of the actual salary drawn by him preceded by a joint request made for such purpose jointly with his employer. The said proviso has been omitted by the amendment thereby capping the maximum pensionable salary at Rs.15,000. The scheme has been amended further by a subsequent notification, the Employee's Pension (Fifth Amendment) Scheme, 2016 to provide that the pensionable salary for the existing members who prefer a fresh option, shall be based on the higher salary.

*Confers an option on the existing members as on 1.9.2014 to submit a fresh option jointly with their employer to continue to contribute on salary exceeding Rs.15,000 per month. Upon such an option, the employee would have to make a further contribution at the rate of 1.16% on the salary exceeding Rs.15,000, additionally. Such a fresh option would have to be exercised within a period of six months from 1.9.2014. A power to condone the omission to exercise the fresh option within the said period of six months by a further period of six months is conferred on the Regional Provident Fund Commissioner. If no such option is made, the contribution already made in excess of the wage ceiling limit would be diverted to the PF Account, along with interest.

* Provides that monthly pension shall be determined on pro-rata basis for pensionable service up to 1st of September, 2014 at the maximum pensionable salary of Rs.6,500 and for the period thereafter at the maximum pensionable salary of Rs.15,000 per month.

* Provides for withdrawal of the benefits where a member has not rendered the eligible service as required.

Defending these amendments, the EPFO had contended before the High Court that, payment of pension computed on the basis of the contributions made on their actual salaries by the employees would deplete the Pension Fund and would make the scheme unworkable.

The High Court rejected this contention and also found that the provision capping the maximum pensionable salary at Rs.15,000, thereby disentitling the persons who have contributed on the basis of their actual salaries to any benefits on the basis of the excess contributions made by them, is arbitrary and unsustainable.

The division bench comprising Justice Surendra Mohan and Justice AM Babu had observed: "The employees, who have been making contributions on the basis of their actual salaries after submitting a joint option with their employers as required by the Pension Scheme, are denied the benefits of their contributions by the said amendments without any justification.

Apart from the above, to cap the salary at Rs. 15,000 for quantifying pension is absolutely unrealistic. A monthly salary of Rs.15,000 works out only to about Rs.500 per day. It is common knowledge that, even a manual labourer is paid more than the said amounts as daily wages. Therefore, to limit the maximum salary at Rs.15,000 for pension would deprive most of the employees of a decent pension in their old age.

Since the pension scheme is intended to provide succour to the retired employees, the said object would be defeated by capping the salary. "If at all, a situation where the Fund base gets eroded occurs, the situation could be remedied at that time by enhancing the rates of contributions of persons contributing to the Fund through a legislative exercise. The attempt to maintain the stability of the fund by reducing the pension would only be counter-productive and would defeat the very purpose of the enactment," the bench had said.