EPS
From Indiapensions
eldomc4t Employee Pension Scheme is a defined benefit scheme where monthly pensions are paid to the members after they retire In case of the death of the member, pension is paid to the widow and children. The scheme commenced on November 1995 and replaced the Family Pension Scheme, 1971.
Applicability
The scheme currently applies to all establishments engaged in 182 specified industries , employing at least 20 people. Once an establishment is covered, it remains covered even if the number of employees fall below 20. The scheme is mandatory only for employees earning a monthly salary up to Rs. 6,500, where salary includes basic wage,with dearness allowances, retaining allowance and cash value of food concessions. However employers usually extend it to all employees. The EPS coverage has been steadily increasing, with a membership of 3,11,49,049 people as on March 2005.
Operational Framework
Contributions
No additional contributions are required by the employer or employees under the Employees pension scheme. Out of the contribution towards Provident Fund, employer's contribution equal to 8.33% of the employees' wages is diverted towards the Employees Pension Fund. The Government also contributes at the rate of 1.16% of the employees' salary. The total contributions collected by the EPS stood at Rs.6511.85 crore as of 2004-05.
Benefits
The number of beneficiaries under the EPS has been increasing at a fairly rapid pace. The total number of pensioners as well as the number of pensioners in each category has shown a consistent increase over the years. This indicates an ever increasing responsibility of the EPS to meet the pension requirements of an increasing number of people.
Monthly Pension
A member is eligible to receive pension after retirement if he has rendered 10 years of service. The kind of pension a member gets under the scheme depends upon the age at which he retires and the number of years of eligible services he has rendered. If a member has rendered twenty years of service and retires after attaining the age of fifty eight he is entitled to Superannuation Pension. If he has rendered twenty years of service but retires before attaining the age of fifty eight he gets a retirement pension. Lastly a member is entitled to Short Service Pension if he has rendered services for any number of years ranging between ten and twenty. The period of eligible service is calculated as follows
- For employees joining the EPF after 16th November 1995, the period of service is calculated as the number of years of service rendered after November 16th 1995. For those who were members of the Family Pension Scheme' 71, the period of service is calculated as the total of services rendered before and after November 1995.
- The member is entitled to receive pension as soon as he attains the age of 58 years. This applies even if the member has retired before attaining the age of 58 years.
However in case a member desires to draw a monthly pension before attaining the age of 58 years, he is allowed to do so provided he has already attained the age of 50. In this case the pension would accrue to the member at a reduced rate. The pension accruing to the member would be reduced at the rate of 3% for every year the age falls short of 58 years.
Disability benefits
In case of total and permanent disability, a member is entitled to receive pension provided he has contributed to the fund for at least one month. Pension is calculated in the same manner as for any other retiree. The pension paid is subject to a minimum of Rs.250.
Widowers pension
In case of death of a member, his widow is entitled to receive pension till her death or remarriage. In case there are more than one widows pension would be paid to the eldest surviving widow where the term eldest implies senior-most with respect to marriage. On the death of the senior-most widow, pension will be paid to the next surviving widow. The widow's pension is subject to a minimum of Rs.450.
Children's pension
If there are surviving children of a deceased member they are entitled to receive pension provided they are below 25 years of age. This is in addition to the monthly widow's pension The monthly pension admissible to children is equal to 25% of pension received by the deceased member's widow subject to a minimum of Rs.115 per child per month. Starting from the eldest, maximum of two children can receive pension at a time. In addition to the above, if there is a totally and permanently disabled child in the deceased member's family he is entitled to receive children's pension irrespective of his age. If the deceased member is survived only by his children, then the children will be entitled to receive a monthly Orphan's Pension. This pension will be paid at the rate of 75% of the amount of monthly widow's pension payable subject to a minimum of Rs.250 per month per child. Even if a widow dies or remarries after her pension has been sanctioned,the children would be entitled to receive Orphan's Pension in lieu of Children's Pension. The Orphan's Pension is payable to a maximum of two children at a time, starting from the eldest.
Benefits to nominees
In case a member is unmarried or has no living spouse or children, he can nominate a person who would receive pension benefits on the death of the member. The nominee would receive pension benefits equal to the monthly widow's pension. The nomination would remain valid only till the member acquires a family. Thus if the member subsequently acquires a family the nomination would stand void. In case the member dies without any nomination, the widow's pension will be paid to dependent father or dependent mother. If the father dies after his pension is sanctioned, the dependent mother receives pension lifelong. The beneficiaries are entitled to receive pension from the date of death of the member.
Commutation
A member is allowed to take a maximum of 1/3rd of his monthly pension as lump sum. The value of commutation would be hundred times the amount of monthly pension the member desires to take away. Thus if a member's monthly pension is Rs.600 the maximum amount he can take as commutation is 1/3x600x100. In this case the balance of pension payable on a monthly basis is Rs.400.
Return of capital
A member can also opt for drawing a reduced pension and avail the facility of return of capital. In this case the member gets less than the full amount of pension admissible to him and after his death a given lump sum is returned to his nominee. There are three alternatives available to him in this case.
Benefits if a member leaves service before being eligible for monthly pension
If a member leaves his job or attains the age of 58 before rendering at least 10 years of service, he will be entitled to a withdrawal benefit. The amount he can withdraw is a proportion of his monthly salary on the date of exit from employment. The proportion depends on the number of years of eligible service he has rendered.
If a member leaves a job before attaining the age of 58, he also has the option to receive the Scheme Certificate. The certificate indicates the pensionable salary and the amount of pension due on the date of his exit from employment. In case he subsequently gets employment in an establishment covered under the EPF Act, this certificate will be taken into account to calculate his full pensionable service.
The number of non pensionable exits have been quite high. In fact the number of non pensionable exits have been higher than pensionable exits. For the year 2000, the number of non pensionable exits were 17,17,619 as compared to 2,12,531 pensionable exits. This is not a good sign as it can defeat the very purpose of the scheme.
If an employee was a member of the erstwhile Family Pension Scheme, he would receive additional withdrawal benefits.
Investment
The funds have to be invested as per the directions given by the Central Government in the securities listed in Section 20 of the Indian Trusts Act, 1882. The current investment pattern has been prescribed by the Government with effect from 1st April 2003. The contribution by the Government is kept in the Public Accounts and earns an interest rate of 8.5% as of 2004. An observation of the profile of EPS investments shows that over the years there has been a sharp rise in investment in Central Government, State Government and Government guaranteed securities. The investment in special deposits has remained more or less constant while the investment in public sector financial institutions has actually declined. The funds in Public Accounts has also shown an increase. Investments are made each year out of the contributions received after setting aside the required amount for meeting that year's liabilities. Thus even though EPS is a funded scheme, it tends to behave like a pay as you go DB scheme.
An actuarial valuation of the Pension Fund is carried out on an annual basis to examine the relative positions of the assets and liabilities and assess the viability of the scheme. The pension rates may be revised based on such valuation.
Administration
The scheme is administered by the Employees' Provident Fund Organisation and is governed by the EPF&MP Act 1952. Since the inception of EPS, the working setup of EPFO has been modified in order to ensure proper implementation of the new scheme and to provide prompt and trouble free service to the Pension Fund members and pensioners. A Pension Wing has been constituted in all the field offices of EPFO. This wing comprises of Pension (Monitoring) Section, Pension (Audit) Section, Pension (Disbursement and Reconciliation) Section and a Database Creation Cell to look into the different work areas related to pensions. The offices have been equipped with application software programs to assist in monitoring, maintenance of accounts and record keeping.
The Employees Pension Fund Account records all contributions into and disbursements made out of the fund The scheme provides for the maintenance of a separate account for recording administrative expenses. However only one account is maintained-the Pension Fund Account. An amount equal to 16% of administrative expenses can be met out of the Employees Pension Fund. This includes costs of remittance of pension which is to be charged exclusively from the Pension Fund. The balance of administrative expenses are met out of administration accounts set up under the Employees Provident Fund Scheme.
Taxation
The employers' contribution towards provident fund is treated as a deductible business expense as per Section 36(1)(iv) of the Income Tax Act 1962. The fund income is tax exempt. However the monthly pensions are taxable.
Exemption
Under Section 17 of the EPF&MP Act, exemption can be granted to an establishment from the scheme provided the members of such an establishment are or propose to be members of a pension scheme that provides benefits at least at par with those in the EPS. The EPFO has been very strict in this matter and only three establishments have received exemption so far. They are;
- M/s TELCO (Maharashtra).
- M/s Malaysian Airlines(Tamil Nadu).
- M/s Oil India (Assam).
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