Supreme Court Paves Way for Higher Pension Proportional to Employees’ Salary

Existing Framework: The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (the “EPF Act”) is an employee welfare legislation which aims at inter alia, safeguarding the welfare of the employees upon termination of their employment. The Employee’s Pension Scheme, 1995, is one of the schemes established under the EPF Act. The said scheme was amended in 2014 to cap the maximum pensionable salary to Rs.15,000 per month.

Legal Update: The Supreme Court, vide order dated April 01, 2019, dismissed a special leave petition filed against a Kerala High Court judgement which set aside the aforesaid amended scheme of 2014, and ruled that all retired employees will now receive a pension on the basis of their full salary instead of capping the figure on which contribution is calculated at a maximum of Rs. 15,000 per month.

Key Inference: The provision which capped the maximum pensionable salary at Rs.15,000/- and which thereby, denied the persons who have contributed based on their actual salaries, to any benefits, on the basis of the excess contributions made by them, is arbitrary and unsustainable. Therefore, as per this verdict, the pension to all retiring employees would be computed on the basis of their last drawn full salary. This comes as a major relief to many employees as they are now entitled to receive a higher pension.

April 2nd, 2019