Employees Pension Scheme-

Employees' Pension Scheme -
Oppose Arbitrary Reduction of Benefits, Demand Improvments
- W. R. Varada Rajan
The Employees’ Pension Scheme (EPS) was introduced in 1995 as an additional scheme under the Employees' Provident Fund Miscellaneous Provisions Act, 1952. A fierce debate preceded the enactment of legislation in Parliament in this regard. The CITU and some other Left Trade Unions had demanded Pension as a third benefit and pointed out the inadequacies and shortcomings in the EPS put forth by the then Congress Government at the Centre. However, the INTUC, BMS, AITUC and HMS had lent unqualified support to the EPS as brought out by the Government and justified such support with an ingenious argument that once the Scheme comes into vogue, improvements could be made subsequently. The Government on its part included a provision for annual valuation of the Employees' Pension Fund and also assured a comprehensive review after 10 years of introduction of the EPS.
The first four annual valuation reports brought out at the end of November 1996, March 1998, March 1999 and March 2000 had resulted in grant of paltry relief of 4 per cent, 5.5 per cent, 4 per cent and 4 per cent respectively. Thereafter, the annual valuation reports for the period from 2001 to 2005 incorporated an alarming picture of huge deficit in the Pension Fund, based on the assessment of growing contingent liability. Besides, the Employees' Provident Fund Organisation and the Ministry of Labour have been resorting to unilateral interpretation of the provisions of the EPS, adversely affecting even the grossly inadequate benefits contained in the Scheme. The Supreme Court verdict upholding the EPS 1995 had emboldened the Government to take drastic measures detrimental to the interests of the workers.
The Ministry of Labour had put forth several proposals for reducing the benefit-package under the EPS 1995. These proposals were opposed by the representatives of the central trade unions inside the Central Board of Trustees of the EPF. The Government of India attempted to push these proposals at the meetings with the representatives of the central Trade Unions held with the Secretary, Ministry of Labour on 21.4.2005, 21.6.2005 and 18.7.2005 and the Minister of Labour on 16.11.2006. In all these meetings, all the central trade unions had rejected these proposals and unanimously demanded that the contribution from the employers and the Government of India should appropriately be increased in order to grant improved pension benefits and index linked dearness relief to the pensioners.
The Employees' Provident Fund Organisation (EPFO) has constituted a committee to conduct a comprehensive review of the Pension Scheme. Besides, there is a Pension Implementation Committee under the CBT to continuously monitor the Pension Scheme.
But, the Governmnet of India had issued a Gazette notification (GSR Nos. 688 (E) dated the 26th September, 2008) incorporating several amendments They are:
1. Amendment to Para 12 (7).
2. Deletion of Para 12 A.
3. Deletion of Para 13.
These amendments have far reaching consequences by way of substantially altering the benefit package of the EPS'95 to the detriment of the interests of workers.
The first amendment to Para 12 (7) has increased the rate by which the amount of pension is to be reduced in the case of early pension (availed by those who have completed 50 years of age but are below the age of 58) from 3 per cent to 4 per cent. This will result in immediate reduction in the quantum of pension.
If for example, the eligible pension on completing 58 years of age is Rs. 1000 per month and the employee has to exit the job on completion of 50 years of age, either due to resignation, retrenchment, illness or otherwise, he would get an early pension applying a reduction of 3 per cent per year i.e. 24 per cent reduced from the monthly pension and would get Rs. 760 per month. This reduction rate has now been enhance to 4 per cent and in this case the reduction would be 32 per cent or the monthly pension would be Rs. 680 only.
The second amendment (Deletion of Para 12 A) is altogether eliminating the option available at present for commutation of pension. The existing provision enables a member to commute up to a maximum of one-third of his pension so as to receive hundred times the monthly pension. This facility was mad available after three years of commencement of the Pension Scheme i.e. from 16.11.1998 onwards.
If for example, the eligible pension is Rs. 1000 per month and the pensioner opts to commute one-third of his monthly pension the commuted value of will be equal to 1/3 x 1000 x 100 = Rs. 33333 and the same will be paid at the time of exercise of option for commutation. The balance pension payable on monthly basis will be Rs. 667.
This option for commutation is totally abolished now. The pensioner is thus denied the opportunity to commute one-third of his monthly pension and avail a lump sum amount to meet exigencies like marriage in the family, death of kin, medical expenses etc. The concept of commutation is a universal component of any pension scheme and this is done away with arbitrarily.
The third amendment (Deletion of Para 13) eliminates the existing option available to a member eligible for pension to draw reduced pension and avail a return of capital under any of the three alternatives provided. Unlike the option for commutation, the option for return of capital must be exercised at the time of applying for pension itself.
The three alternatives are:
i. A pensioner during his lifetime can opt to avail a revised pension of 90 per cent of original pension with return of capital equal to 100 times the original monthly pension on death of the member payable to the nominee.
ii. A pensioner during his lifetime can opt to avail a revised pension of 90 per cent of original monthly pension; the widow of the pensioner can opt to avail a revised pension of 80 per cent of original monthly pension on the death of her husband; the nominee of the pensioner can also exercise this option on the remarriage of the widow; In these case the return of capital will be equal to 90 times the original monthly pension.
iii. A pensioner can opt to avail a fixed pension for a period of 20 years notwithstanding whether the member lives for that period or not. Under this option the member can avail a 87.5 per cent of original monthly pension for 20 years and at the end of 20 years, avail return of capital equal to 100 times the original monthly pension.
All these three alternative options for availing return of capital have now been totally eliminated.
Besides these adverse changes in the benefit package under the Employees' Pension Scheme 1995, the notification incorporates an amendment to the table under the EPS revising the rates of damages to be levied from an employer who makes a default in the payment of contributions/charges payable as prescribed in the scheme.
The existing rate of damages and reduced rates are as under:
Period of Delay (Pre-revised) Rate of damages (As amended)
Less than two months 17 % 5 %
2 months & above but less than 4 months 22% 10%
4 months & above but less than 6 months 27 % 15 %
6 months & above 37 % 25 %
Such damages are levied under the Employees' Provident Fund (EPF) Scheme and Employees' Deposit Linked Insurance (EDLI) Scheme as well. The Government of India has issued two other Gazette Notifications (GSR Nos. 689 (E) to 690 (E) dated the 26th September, 2008) incorporating identical amendments to the tables under these two schemes as well.
These amendments arte intended to benefit the employers who are defaulting the remittance of contributions under these schemes. While on the one hand the Government of India has virtually abolished the inspection of establishments to do away with the 'harassment' of employers and has pledged to promote voluntary compliance, the penal element in respect of defaults in compliance have also been softened.
Only the subject of reducing the rate of damages was placed as an agenda item of the 181st, 182nd and 183rd meetings of the Central Board of Trustees (CBT), EPF held on 24.1.2008, 17.4.2008 and 5.7.2008. In the CBT, the agenda item was deferred on all the three occasions. A decision has since been taken on this deferred item of the agenda at the back of the CBT. This is highly deplorable.
While the first amendment to Para 12 (7), i.e. enhancement of the rate of reduction in the case of early pension, had been mooted by the Consultant Actuary and the Valuation Reports. But the other amendments had never been raised at any time before either in the meetings of the CBT or in the meeting of the Pension Implementation Committee. Moreover, these issues were not discussed in the meetings with the representatives of the Central Trade Unions, referred to earlier.
These arbitrary decisions have been given effect to even while a comprehensive review of the EPS' 95 is under way and the Committee set up for the purpose has held two sittings.
The trade union movement should vehemently protest over this unjustified move, which has rendered the statutory tripartite body of the CBT irrelevant and reduced the tripartite consultation mechanism in the Labour Ministry to a mockery.
Here it is also worthwhile to record here that a decision taken by the CBT after due deliberations at its 182nd and 183rd meetings for reduction of threshold limit for coverage of the EPF & MP Act, 1952, from the existing limit of 20 workers to 10 workers had not been given effect to. While the Ministry of Labour has chosen to maintain a studied silence over this decision, it has no qualms to decided with unseemly haste flouting all norms to impose adverse changes in the benefit package of the EPS' 95.
The trade union movement should demand immediate withdrawal of these Notifications and urge the Government of India to initiate a dialogue with the Central Trade Unions for bringing meaningful improvements in the Employees' Pensions Scheme like enhancement of the minimum pension bringing it on par with the minimum pension available under the central government pension scheme applicable to pre – 2004 recruits and provision of index linked dearness relief for the pensioners. For this, the contribution from the employers and the Government of India should appropriately be hiked.