The EPS (Employees’ Pension Scheme), 1995, was introduced to provide a monthly pension after retirement, financial security for employees and their families, and benefits in the event of death or disability for employees in the organised sector who are members of the Employees’ Provident Fund (EPF). It replaced the earlier Family Pension Scheme of 1971 and has been administered by the Employees’ Provident Fund Organisation (EPFO) since its introduction on 16 November 1995.
How does the Scheme work?
EPS is a defined benefit pension programme, and there is no direct employee contribution in it. Instead, out of the employer’s 12% EPF contribution, 8.33% of the basic salary (subject to the wage ceiling of INR 15,000) is allocated to EPS. Apart from the employer’s contribution, the central government also contributes to EPS at the rate of 1.16% of the employee’s basic salary, which is currently capped at INR 15,000. The accumulated funds are then managed by the Employees’ Provident Fund Organisation (EPFO).
The benefits provided by this scheme include -
- Superannuation Pension, which is payable at the age of 58, subject to a minimum of 10 years of contributory service.
- An early pension, available from the age of 50, with reduced benefits. It is also subject to 10 years of service.
- Disablement pension, which protects employees who become permanently disabled while in service.
- Widow/ Widower Pension
- Children/ Orphan Pension
The 2014 Amendment and Eligibility
Up to 31 August 2014, all EPF members automatically became members of the Employees' Pension Scheme (EPS), irrespective of their basic salary. This position changed with effect from 1 September 2014, when the following amendments were introduced-
- Employees with a basic salary below INR 15,000 continue to automatically become EPS members.
- Employees with a basic salary above INR 15,000 who are joining employment for the first time on or after 1 September 2014 are not eligible for EPS membership.
- Employees who were existing EPS members as on 1 September 2014 continue as members irrespective of their salary.
Complexities Faced by Members on the Ground
The 2014 amendment has created several practical challenges regarding EPS membership eligibility:
- Incorrect declarations in Form 11- Form 11 is the document through which an employee declares their EPF and EPS status at the time of joining an establishment. If an employee does not understand the eligibility rule, they fill it incorrectly, and that error then travels forward into the system.
- No system-driven validation of membership eligibility by EPFO - Contributions are accepted and credited without the system verifying whether the member is actually eligible for EPS. The result is that employees end up incorrectly classified, i.e. either enrolled under EPS when they should not be, or excluded when they should be in. Neither the employee nor the employer has any direct mechanism to correct these errors independently.
- Corrections can only be made through the Regional Provident Fund Commissioners (RPFCs) - This means any error requires going through an official channel, which in many cases are physically inaccessible for people because EPF offices are often located in different cities from where the employee works or lives. Active employees also face difficulty correcting errors just as much as former employees do.
- Impact on claims and benefits- Members are unable to transfer or withdraw their funds, and claims are rejected upon exit. These delays lead to delayed access to funds, employee dissatisfaction, and increased grievances.
What Can Be Done to Address These Issues?
A few measures can help address these issues.
First and most importantly, EPFO needs to have an internal mechanism to make corrections in member accounts based on the first employment salary and contribution details, which are already available with EPFO. This would help in avoiding claim rejections that members currently face.
Apart from this, regular awareness programs on EPS should be conducted so that members can easily understand the scheme and their eligibility. Employees should also be educated during onboarding about the eligibility rules so that Form 11 is filled correctly in the beginning.
In addition, collecting EPF passbooks from the date of joining or 1 September 2014, whichever is earlier, can help in verifying EPS eligibility before any error enters the system.