Landmark Decision of Supreme Court on the Question of Employees’ Right to Exercise Option for Contributions on Salary Exceeding the Ceiling Amount under Employees’ Pension Scheme 1995

In a landmark Judgment on the option to be exercised by the employees for contributions on salary exceeding the ceiling amount under the Employees’ Pension Scheme 1995 (“Scheme”), the Supreme Court (“SC”) has directed that the time limit for coverage beyond the ceiling amount should be extended by a further period of 4 months (from the date of judgment, i.e., 4th November, 2022) to enable all the members of the pension fund drawing more than ceiling amount to exercise the joint option as contemplated in paragraph 11 (3) and (4)* of the Scheme (post 2014 amendment).

The SC has also held that if the employer and employee jointly opt for coverage beyond the salary limit of Rs. 15000, without giving an earlier option under the unamended Clause 11(3)** of the pension scheme, they would not be automatically excluded from their right to exercise option under paragraph 11(4) of the post amendment Scheme.

Therefore, all the employees who were entitled to exercise the option after the amendment of 2014 but could not do so due to the interpretation on cut-off date by the authorities, will now have another chance to exercise their option. The SC has further clarified that once such joint option is exercised, the transfer of fund from the provident fund corpus to the pension fund shall be done in terms of the Scheme.

The above direction shall also apply to the employees of the exempted establishments in the same manner as the employees of the regular establishments, but the employees who had retired prior to 1st September, 2014 without exercising any option would not be entitled to the benefit of this judgment.

On the question of legality of requirement of the employees’ (who go beyond the salary threshold) contribution to the pension scheme at the rate of 1.16% of their salary [as contemplated under 1st proviso to para 11(4) of the Scheme], the SC has opined that such requirement is illegal since the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 does not contemplate any contribution to be made by an employee to remain in the scheme and therefore, the Central Government cannot mandate such a stipulation under the Scheme. However, the SC has kept the operation of this part of its judgment suspended for a period of 6 months so that the legislature may consider the necessity of bringing appropriate legislative amendment on this count.

The said directions of the Supreme Court has been passed in the context of the Scheme after the amendment of 2014 which stipulates that the maximum pensionable salary is to be kept to Rs.15000 per month, raising the earlier ceiling of Rs. 6500¬ per month. It is also provided under the Scheme that an existing member who, at the option of the employee and employer as on 1st September, 2014 had been contributing on a salary exceeding Rs. 6500 per month could exercise fresh option jointly with the employer to continue to remain in the fund even if the salary went beyond Rs.15000 per month and the pensionable salary for the existing member exercising such an option was to be based on the higher salary. Under the post­2014 regime, the fourth proviso to paragraph 11(4) specifies that if no option is exercised by a member within the stipulated period, it would be deemed that the concerned member has not opted for contribution over the wage ceiling. In such a case, the contributions to the pension fund made beyond the wage limit in respect of such a member is to be diverted to the provident fund account of the member along with interest, as declared under the Scheme from time to time.

Source: Supreme Court