The EPFO has already received nearly 1.4 million applications for higher pension under the Employees’ Pension Scheme and it is expected that more people would apply before the June 26 deadline.
Senior government sources said the method of computing the pension will be finalised after the application deadline passes and it would depend on the number of applications and the overall contribution received into the pension fund. They also indicated that the current pension formula could be reviewed if required, but a decision on this has not been taken as of now.
“These are issues that will be looked into once there is an understanding of what are the total number of people who have been found to be eligible for the scheme and the amount of past contributions received,” said the source.
Under the current formula used by the EPFO to calculate pension, the pensionable salary is multiplied by the pensionable service or the number of years of contributions made to the EPS and then it is divided by 70. The pensionable salary was earlier defined as the average salary of the last 12 months, but this has now been changed to the average salary of the last 60 months.
As of now, the EPFO has released a calculator for applicants for estimating the dues for pension on higher wages. This would help applicants assess the amount of money that has to be transferred in their pension fund for past contributions and also the routing of funds from their provident fund to the pension fund.
This follows the decision to source the additional contribution of 1.16% for members seeking higher pension from within the overall 12% of the contribution of the employers into the provident fund. This in effect means that the employer’s contribution towards the pension fund would be 9.49% as against the current 8.33% and it would have to be deducted for the past years. In an internal circular to its offices, the EPFO has also listed out the procedure for deposit or transfer of due contribution with interest into the pension fund.
Experts noted that a decision to opt for higher pension under the scheme should only be taken based on a comprehensive view of their income and investments but said that the lack of clarity on the method of calculating pension could prove to be a disincentive for many.
Kuldip Kumar, personal tax expert and former national leader-global mobility practice, PwC India, noted that anyone making investments in any instrument, the market regulator Sebi, has strict norms of disclosures to protect investors’ interest. “Opting pension on higher salary too is an investment decision, it is suggested that the method of computation of pension should be clarified before subscribers exercise the option of choosing pension on higher salary. If that is not possible at this stage, subscribers may be allowed to withdraw their earlier option of pension on higher salary, if they are not happy with the method of computation of pension to be notified in future,” he said.
He further noted that the EPFO had said that the method of computation of pension will follow through subsequent circular. “That raises the question, whether EPFO will change the pension formulae, where based on the number of applications received for opting the pension on higher salary and the corpus and/or current matrix doesn’t result in EPFO sustaining to meet its pension obligation,” he further said.