Higher Pension Cannot Be Denied To Pensioners For Not Exercising Joint Option Before Amendment: Punjab And Haryana HC

Employees Pension Scheme (EPS) is part of the retirement benefits offered by the Employees’ Provident Fund Organisation. Recently, the Punjab and Haryana High Court, in a judgement to petitions against the Employees’ Provident Fund Organisation (EPFO), ruled that retired employees cannot automatically be excluded from getting higher Pension for not exercising joint option before September 1, 2014.

According to a LiveLaw report, the division bench of Justice Sureshwar Thakur and Justice H.S. Grewal held that denying higher Pension to those who had contributed to EPS more than the stipulated limit without exercising the joint option is unjustified because this amendment didn’t exist at the time of making contributions.

Note that in November 2022, the Supreme Court of India in the Employees Provident Fund Organization versus B Sunil Kumar case held that those who could not exercise their option of higher Pension within the cut-off date should be given another opportunity to inform the department about their pension choice. The cut-off date was also extended.

EPFO mandates a 12 per cent deduction from an employee’s salary towards provident fund contribution every month. As per the rules, the employer also has to match this amount and deposit contributions from both employee and employer with EPFO. EPF deduction is mandatory for employees receiving up to Rs 15,000 salary per month. For those getting more than this amount, EPF deduction is not mandatory. However, employees and employers can opt for the scheme jointly to enroll such employees but within the wage ceiling, currently Rs 15,000.

Notably, employee entire contribution goes towards EPF but employer’s contribution is divided in to both Employee provident fund (EPF) and Employee pension scheme (EPS), in 3.67 per cent and 8.33 per cent, respectively.

Proviso In Para 11(3) of EPS, 1995:

A proviso was added on March 16, 1996, in para 11(3) of EPS, 1995, allowing people to contribute to their EPS based on actual higher salary by opting for it jointly with their employers. The option had to be exercised within one year from the commencement date of the scheme or when the salary exceeded the ceiling, which was later.

Removal Of Para 11(3) Of EPS, 1995:

However, on August 22, 2014, the government removed this proviso effective from September 1, 2014, to end the joint option for higher Pension.

EPFO issued circulars that the joint option was not needed if an employee already contributed based on an actual higher salary.

EPFO Superceded Earlier Circulars

The problem started when EPFOs issued new circulars in 2022 and 2023, requiring employees to exercise their joint options. Not only this, their Pension was also reduced to the wage ceiling.

This led to several petitions against EPFO.

EPFO said that after the Supreme Court judgement in November 2022, it issued a new circular on December 29, 2022, superseding earlier circulars. Reportedly, EPFO acknowledges the mistake of accepting joint options and granting higher pensions to some employees even after September 1, 2014.

It contented that those with higher salaries were not allowed a higher pension without exercising the joint option, and therefore, they were not eligible for a higher pension. It also argued that overpaid pensions need to be recovered.

Court’s Observation And Judgement:

The court noted that employees who exercised the joint option under para 11(3) as of September 1, 2014, are covered under amended para 11(4). It noted that employees who retire before September 1, 2014, or have not exercised the option are not eligible for a higher pension.

According to para 11(4), “The existing members as of the 1st day of September 2014, who at the option of the employer and employee, had been contributing on salary exceeding six thousand and five hundred rupees per month, may on a fresh option to be exercised jointly by the employer and employee continue to contribute on salary exceeding fifteen thousand rupees per month and the pensionable salary for the existing members who prefer such fresh option shall be based on the higher salary.”

The court held that two conditions need to be satisfied before disqualifying employees from the pension benefits. These are if the employees had superannuated before September 1, 2014, and if they have voluntarily left the pension fund without exercising joint option under para 11(3). It is employer’s responsibility to prove these two points before denying the Pension.