Exercising Higher Pension under EPS: Analysing the Supreme Court Verdict and the Post-Judgment Challenges

The Employee Pension Scheme of 1995 (“EPS/ Pension Scheme”) was established by introducing Section 6-A in the Employees' Provident Funds and Miscellaneous Provisions Act (“EPF Act”). This amendment represented a significant change, allowing the government to establish a dedicated Pension Fund. Prior to 1995, the legislative intent of the Act focused solely on the Employee Provident Fund..As per EPS, the employer is supposed to contribute 8.33% of the employee's provident fund contribution which is 12% of the employee’s wages, which include the Basic Pay and Dearness Allowance [Para 3(1), EPS]. However, according to Para 11(3) of the Scheme, a ceiling limit was set, above which the employee's wage was excluded to compute the EPS contribution. The ceiling limit in 1995 was capped at INR. 5,000/- (Rupees Five Thousand only). However, the same was revised from time to time, and as of date, the ceiling limit is 15,000/- (Rupees Fifteen Thousand only)..The Employee Provident Fund Scheme 1952 (“EPFS”), on the other hand, requires a contribution of 12% of the employee’s wages from both the employer and the employee. The EPFS also has a wage ceiling limit, which was revised from time to time, and as of date, the ceiling limit is INR 15,000/- (Rupees Fifteen Thousand only).In 1990, vide an amendment to Para 26 of the EPFS, the government permitted employees and employers to contribute to the provident fund, beyond the ceiling limit, up to their full wage. This proviso was inserted under sub-para 6. However, it was made mandatory for the employer and employee to jointly apply (Joint Option) to opt for the same. Upon approval of the application for Joint Option by EPFO authorities, the employer and employee were permitted to contribute 12% of the employee’s wages beyond the ceiling limit (up to the employee’s full salary)..In 1996, vide an amendment to Para 11(3) of the EPS, the government also introduced the concept of Joint Option under the EPS. The 8.33% contribution to the Pension Fund was taken from the 12% contribution made by the employer to the Provident Fund, ensuring no additional financial burden on the employee. In essence, only the portion of the contribution that was originally intended for the Provident Fund was redirected towards the Pension Scheme. Therefore, the exercise of a Joint Option towards Provident Fund contribution became a necessary precursor for exercising the same under the Pension Scheme..In 2014, the Ministry of Labour and Employment vide a notification dated August 22, 2014, discontinued the right of the employer and employees to exercise the Joint Option under the Pension Scheme (“2014 Amendment”). This effectively ended employees' entitlement to avail higher pension. The notification was prospective, meaning thereby, it applied only to future scenarios. The 2014 Amendment allowed employees who had previously opted for the Joint Option to submit a new application within six (6) months, along with an additional contribution of 1.16% of their wage, to continue their pension contributions beyond the prescribed ceiling limit. However, it also prescribed that if an employee who had earlier chosen the Joint Option failed to submit this new application within the specified period, they would be considered to have opted out of the higher pension option. As a result, the contributions that exceeded the ceiling limit would be returned to the Provident Fund..The 2014 Amendment faced significant criticism from employees, trade unions and business associations. The removal of higher pensions was seen as a significant departure from the social security objectives outlined in the EPF Act. On account of the same, the 2014 Amendment was challenged before various High Courts, and the fate of the same was finally decided by the Hon’ble Supreme Court in the case of EPFO v. Sunil Kumar B and others (“Sunil Kumar Judgment”)The Supreme Court, in its ruling, emphasized that pensions are a right similar to property, rather than a “bounty” given to employees. The Court struck down the requirement of a 1.16% employee contribution, declaring it as ultra vires to the parent Act, and also determined that no cutoff date was imposed under EPS. The apex court accordingly had directed the EPFO to reconsider the Joint Options submitted by the employees who were EPS members before September 1, 2014, and did not exercise their option under Paragraph 11(3) of the pre-amendment scheme. Additionally, the Supreme Court specified that employees who retired before September 1, 2014, and did not exercise the option under Paragraph 11(3) were not eligible to apply for a Joint Option. The summary of the order is as follows:.Following the Sunil Kumar judgement, vide a circular dated December 29, 2022, EPFO declared the following documents to be submitted by the employee along with an application for higher pension:1. Proof of Joint Option under Para 26(6) of the EPF Scheme duly verified by the employer.2. Proof of Joint Option under the proviso of the erstwhile para 11(3) of EPS, duly verified by the employer.3. Proof of remittance in Provident Fund on higher wages exceeding the prevalent wage ceiling.4. Proof of remittance in Pension Fund on higher wages exceeding the prevalent wage ceiling.5. Written refusal of the Assistant Provident Fund Commissioner or any other higher authority of EPFO to such requests/ remittance..The circular overlooked several aspects and failed to clarify the vital issues. Firstly, it required 'proof of Joint Option' under Section 26(6) of the EPF scheme, but did not specify what constitutes valid proof. Although a subsequent circular was issued to clarify the acceptable forms of Joint Option proof, many applications had already faced rejection by that time. Additionally, the follow-up circular did not specify what qualifies as 'proof of remittance,' leading to numerous questions regarding acceptable documentation. This lack of clarity concerning the standards of proof raises concerns and has led to various claims and disputes between employees and the EPFO.The absence of any standards operating procedures (SOPs) in the circular regarding what constitutes 'proof of remittance' suggests that there is no rigid requirement for any specific document, recognizing the challenges of producing archival documents spanning several decades. However, this consideration has been overlooked by the EPFO authorities, resulting in the rejection of Joint Option applications for want of sufficient proof.It has been noticed through print media that as of March 2025, more than half of the applications for Joint Options were rejected by EPFO authorities, which were challenged by many entities and employees at various high courts in India. Considering the pendency of these petitions before the Hon’ble Courts and addressing several representations and complaints received from all industries, as per the reports of the print media, EPFO is in the process of reconsidering the rejected applications afresh..The Supreme Court's judgment in the case of EPFO v. Sunil Kumar B and others (cited supra) marked a pivotal moment in the discourse surrounding the Employee Pension Scheme. By recognizing the concerns raised about the 2014 Amendment, the Court underscored the importance of social security frameworks in safeguarding employee rights and ensuring equitable pension benefits. The ruling not only addressed the arbitrary nature of the six-month deadline for opting for higher contributions but also reaffirmed the legislative intent of the EPF Act in allowing individuals to secure adequate pension coverage. However, rejection of applications under the garb of ‘Proof of remittance’ is leaving employees' hard-earned money in administrative limbo. Despite clearance from the Supreme Court, due to inadequate guidelines and consideration as to what could amount to valid proof under the Scheme, the employees’ right to avail higher pensions is kept in abeyance. Hence, a framework needs to be adopted by EPFO to bring transparency, in order to promote the intent of the legislature and compliance with the apex court judgement in the true spirit..About the authors: Dinesh B Eedi is a Partner and Parth Agrawal is a Principal Associate at Lakshmikumaran and Sridharan attorneys..Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench..If you would like your Deals, Columns, Press Releases to be published on Bar & Bench, please fill in the form available here.