The Employees’ Provident Fund Organisation (EPFO) has brought back the old option of linking pension contributions to an employee’s full salary. But this isn’t a fresh benefit for everyone—it mainly helps a small group of workers who had already chosen this higher pension route before 2014.
Back in 2014, the government fixed the minimum monthly pension at Rs 1,000 and capped the pensionable salary at Rs 15,000. This meant that even if someone earned more, their pension would be calculated only on Rs15,000, limiting the maximum pension to about Rs 7,500. New employees earning above Rs 15,000 were not allowed to base their pension on their actual salary, which reduced retirement benefits for higher earners.
By rule, both employer and employee contribute 12 per cent of basic salary to the Provident Fund (PF). A part of the employer’s share goes into the Employee Pension Scheme (EPS). However, most employers calculate PF contributions only on the capped salary, not the full salary. Before 2014, employees—especially in public- sector companies—could opt for contributions based on their actual salary if their employer agreed. This often gave them pensions close to half their last-drawn pay. But once the cap was imposed, this option was discontinued, creating confusion even for those who had already opted in.
Now, EPFO has clarified that the old option is reinstated. Importantly, it applies only to employees who had exercised the higher pension choice earlier, and only if their employer continues to support higher contributions. For most private-sector workers, where PF is restricted to the salary cap, pensions will remain modest. This move, therefore, benefits a limited set of organised sector employees, not the wider subscriber base.
Source – https://www.hrkatha.com/news/epfo-restores-full-salary-pension-option-only-for-a-few/