Issues Faced by EPFO Pensioners

What’s in Today’s Article?

• What is EPFO

• EPFO UAN (Universal Account Number)

• Overview of the Employees’ Pension Scheme (EPS), including its purpose and the EPS (Amendment) Scheme, 2014
• Background and context of the article
• Discussion on the Centralized Pension Payment System (CPPS), including its purpose, pensioners’ reactions, grievances, government constraints, and the way forward

What is EPFO?

The Employees’ Provident Fund Organisation (EPFO) was established by an act of the Indian Parliament to provide social security to workers in India. It was introduced under the Employees Provident Fund and Miscellaneous Provisions Act, 1952, and operates under the Ministry of Labour and Employment, Government of India.

EPFO administers three major schemes:

1. EPFO Scheme 1952
   • Key Features:
     1. Accumulation with interest payable upon retirement or death.
     2. Partial withdrawals permitted for education, marriage, medical emergencies, and house construction.
     3. Housing scheme aimed at realizing the Prime Minister’s vision of Housing for All by 2022.

2. Pension Scheme 1995 (EPS)
   • Key Features:
     1. Provides monthly benefits for superannuation, disability, and to survivors, widows/widowers, and children.
     2. Minimum pension for cases of disablement.
     3. Past service benefits for participants of the former Family Pension Scheme, 1971

3. Insurance Scheme 1976 (EDLI)
   • Key Features:
     1. Provides benefits in the event of an employee’s death who was a member at the time.
     2. Benefit amount is 20 times the wages, with a maximum limit of ₹6 lakh.

EPFO is the largest social security organization globally in terms of both the number of beneficiaries covered and the volume of financial transactions conducted. On October 1, 2014, the Prime Minister introduced the Universal Account Number for employees covered by EPFO, facilitating PF number portability.

EPFO UAN (Universal Account Number)

The Universal Account Number (UAN) is a 12-digit number assigned to employees. If an individual has multiple member IDs from different organizations, all these IDs are consolidated under a single UAN, which remains unchanged throughout their career, even if they switch employers.

The UAN offers several benefits:

• Simplifies the management of multiple IDs by consolidating them into one UAN
• Facilitates easy transfer and withdrawal of claims
• Provides access to an online passbook
• Offers SMS services
• Allows online updates of KYC information
• Enables downloading of the UAN EPF book
• Lets users check their EPF balance online

Employees’ Pension Scheme (EPS 95 Pension Scheme):

• Overview:
  • The EPF Pension, officially known as the Employees’ Pension Scheme (EPS), is a social security initiative managed by the Employees’ Provident Fund Organisation (EPFO).
  • Launched in 1995, it provides pensions to employees in the organized sector upon their retirement at the age of 58.

• EPS (Amendment) Scheme, 2014:
  • The amendment, effective from September 1, 2014, altered membership conditions, applying to employees who joined the EPF Scheme on or after November 16, 1995, with a monthly salary up to ₹15,000.
  • The original salary limit was ₹6,500. Employees now contribute an additional 1.16% of salary exceeding ₹15,000.
  • The maximum pensionable salary was set at ₹15,000 per month.

Background:

• EPFO pensioners face various challenges despite the Union Labour Ministry’s recent approval of the Centralized Pension Payment System (CPPS), expected to launch by January 2025.
• Concerns remain for the 78 lakh Provident Fund (PF) pensioners under the Employees’ Pension Scheme, 1995 (EPS-95).

Current Pension Payment System:

• Pensioners must transfer their Pension Payment Orders (PPO) when relocating, causing delays in pension disbursement.
• Pensions are only accessible through a limited number of empanelled banks, creating inconvenience.

Introduction of Centralized Pension Payment System (CPPS):

• The CPPS will allow pensioners to receive pensions through any bank branch across the country starting January 2025.
• It will transition to an Aadhaar-based system, eliminating the need for physical verification and significantly reducing disbursement costs.

Pensioners’ Reactions to CPPS:

• While pensioners welcome the move, they are cautious and await more details on implementation.
• Analysts note that most pensioners already use ATMs due to the core banking system, so the actual benefits will be clearer post-implementation.

Dissatisfaction with Pension Amount:

• Pensioners are unhappy with the lack of progress on a unified pension scheme combining features from the Old Pension Scheme (OPS) and the New Pension Scheme (NPS).
• Trade unions and Members of Parliament have called for an increase in the minimum pension, which has been stuck at ₹1,000 for years.
  • For example, the Chennai EPF Pensioners’ Welfare Association demands a minimum pension of ₹9,000, including dearness allowance (DA).

Processing of Pension on Higher Wages:

• Pensioners are frustrated with delays in processing applications for pensions based on higher wages, a right granted by the Supreme Court in 2022.
• As of August 2024, only 8,401 of the 17.5 lakh applications submitted online had been processed, with around 1.5 lakh rejected.
• EPFO has issued demand notices to 89,235 applicants requesting the transfer of arrears.

Government’s Financial Constraints:

• The Union government cites financial limitations as the primary reason for not increasing the minimum pension.
• The government contributes 1.16% of employees’ basic wages to the Pension Scheme and allocates a significant budget for pension payments.
  • In 2023-24, the contribution was ₹9,760 crore, with an expected ₹10,950 crore for 2024-25.
• Despite these contributions, there is uncertainty about raising the minimum pension.

EPFO’s Position on Higher Wage Pensions:

• The EPFO historically opposes pensions based on higher wages, arguing that EPS-95 was designed for economically weaker workers.
• The organization believes providing pensions to high-wage earners could threaten the Pension Fund’s sustainability, though there are no immediate cash flow issues.

Way Forward:

• To address these issues, the government should increase its contributions to EPS-95 and revise the wage ceiling for Provident Fund contributions, which has remained at ₹15,000 for a decade.
• A proposal allowing employees to choose between EPF and NPS, suggested by former Finance Minister Arun Jaitley in 2015, could improve investment returns.
• Reconsidering the exclusion of employees who joined after September 1, 2014, from EPS-95 could ensure eligibility for all employees, regardless of earnings.

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