Employees entitled to Pension proportionate to salaries, SC rejects plea to resurrect Pension (Amendment) Scheme, 2014

A move to reinstate amendments that put a limit on the amount of pension payable to employees under the Employees’ Provident Funds and Miscellaneous Provisions Act (EPF Act), 1952 was cut short by the Supreme Court on Monday. .The Bench of Chief Justice Ranjan Gogoi and Justices Deepak Gupta and Sanjiv Khanna effectively held that employees are entitled to receive pension in proportion to the salary being drawn by them and their contributions to the Provident Fund. While holding the same, the Bench dismissed a challenge to a Kerala High Court ruling passed to this effect last year..Changes ushered in by the Amendments.In 2014, the Employees’ Pension (Amendment) Scheme, 2014 was brought in to replace provisions of the erstwhile 1995 Pension Scheme prospectively with effect from September 2014. The 2014 Scheme made changes to the pensionable salary as well as the pensionable service period. The changes so introduced included the following:.The 2014 Pension Scheme brought in a cap on Pensionable Salary. The maximum pensionable salary was limited to Rs 15,000 per month. Prior to the amendment, the maximum pensionable salary was Rs. 6,500 per month. However, under the 1995 scheme, a proviso permitted an employee to be paid pension on the basis of the actual salary drawn by him as well after a joint request is made for such purpose by the employee and the employer. This proviso was also eliminated when the cap of Rs 15, 000 was introduced.The scheme was thereafter amended further in 2016 to provide that the pensionable salary for the existing members who prefer a fresh option, can be based on the higher salary. Paragraph 11(4) of the Pension Scheme was amended to confer an option on the existing members (as on September 2014) to submit a fresh option jointly with their employer to continue to contribute on salary exceeding Rs.15,000 per month. However, in order to avail this option, the employee would have to make a further contribution at the rate of 1.16% on the salary exceeding Rs.15,000 additionally. This was despite the fact that employees are not expected to make additional contributions towards the Pension Fund, over and above what they are expected to pay towards the Provident Fund.Another change ushered in was the creation of different pensions for different service periods. Paragraph 12 of the Pension Scheme was amended so that the monthly pension was determined on pro-rata basis for pensionable service up to September 1, 2014, at the maximum pensionable salary of Rs. 6,500. For the period thereafter, it would be at the maximum pensionable salary of Rs.15,000 per month.Further, the definition of pensionable salary was also altered to mean the average monthly pay drawn over a service period of sixty months preceding the date of exit from the membership of the pension fund. Prior to the amendment, the service period prescribed was only 12 months prior to the exit..Challenge in the Kerala High Court .These amendments promptly invited a challenge in the Kerala High Court, where over a hundred employees contended that the pension that is to be drawn by them has been drastically reduced without any justification..The State countered this challenge by arguing that under the earlier system, employees with higher salaries would draw a pension in excess of their contribution, thereby prejudicing lower-income employees. It was contended 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 in the long run..The High Court, however, found no merit in this contention. It concluded that there was no material justifying the State’s concerns regarding the depletion of the Pension Fund. In the judgment passed in October last year, the Bench of Justices K Surendra Mohan and AM Babu remarked,.“…In the absence of any material to support the contention that the fund is likely to be depleted, we reject the said contention. Apart from the above, there is no provision in the Act that stipulates the pension payments to commensurate with the amounts actually remitted by an employee and his employer. It is also a fact that the administrators of the Fund invest the amounts and generate profit from such investments.”.The Court also proceeded to detail why each individual amendment brought in by the 2014 Scheme was liable to be quashed. Pertinent observations made to this effect include the following:.“As per the amendments, the maximum pensionable salary has been fixed 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. The said provision is arbitrary and cannot be sustained….… 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….…The demand of additional payment of 1.16% of their salaries exceeding Rs.15,000/- is unsustainable for the reason that, Section 6A [of the EPF Act, 1952] does not require the employees to make any additional contribution to constitute the Pension Fund. Nor does it empower the authorities to demand additional contribution. In the absence of any statutory backing, the said provision in the Pension Scheme is ultra vires..While this was the case, the Court also pointed out that there were reports of large amounts of the Pension Fund being left unused, contrary to apprehensions by the state that the fund was being fast depleted..“… placing reliance on a news report carried by “The Hindu” newspaper on 17.8.2014, it is contended by the petitioners that, a staggering amount of Rs.32,000 Crores of unclaimed amount is lying in various inoperative accounts across the country, as unclaimed pension as disclosed by the Central Provident Fund Commissioner at an interactive session with employees at Hyderabad…“.In view of these observations, the High Court set aside the 2014 Pension Scheme amendment and allowed the petitions. The Kerala High Court judgment has now become final after the Supreme Court rejected the Special Leave Petition filed against it yesterday..Read the Supreme Court order dated April 1, 2019:.Read the Kerala HC order dated October 12, 2018: