New Delhi, Aug 26: Employees with a monthly salary of over Rs 15,000 in their first jobs would no longer be able to contribute to the Employees' Pension Scheme (EPS) run by the provident fund department.
According to the pension scheme's latest valuation to be shared with the PF board on Tuesday, its unfunded liability or deficit has shrunk by around Rs 51,000 crore from around Rs 62,000 crore in 2009 to around Rs 10,900 crore in 2012. The scheme's entry norms are being tweaked to ensure that high-income workers do not abuse the benefits of a deficit-ridden scheme that enjoys a subsidy from the central government.
The finance ministry has called for a fresh valuation to assess the impact of the hike in the salary ceiling on PF contributions and calibrating the scheme's benefits on the basis of a fresh valuation. The last time the salary ceiling was hiked, in 2001, from Rs 5,000 per month to the present Rs 6,500 cap, the pension scheme's liabilities had jumped by Rs 10,000 crore.
Over 8.5 crore formal sector employees have a Provident Fund account, where 24% of their salaries is diverted to guarantee a lumpsum retirement nest-egg and a monthly pension through the EPS. A little over a third of this contribution (8.33% of salary) is parked in the EPS that was launched in 1995 and is the only pension scheme in the world that defines both contributions and benefits.
The government currently brings in around Rs 1,200 crore a year into the nearly Rs 2 lakh crore pension scheme, contributing 1.16% of every scheme member's salary up to the salary ceiling.
Less than 21% of the scheme's beneficiaries get a monthly pension of Rs 1,000 or more, with over a third getting less than Rs 500.
The government has okayed a minimum pension under the scheme o fRs 1,000 along with the hike in the salary ceiling for statutory PF contributions, but the finance ministry has set some stiff riders and conditions before concurring.
The major changes being simultaneously introduced are designed to keep out high income workers from availing the pension scheme that currently offers a pension linked to the salary paid in their last 12 months in service.
Most importantly, the membership of EPS is being restricted to persons whose salary at the time of joining service was less than Rs 15,000, the PF department has informed its board members. If someone's salary moves beyond Rs 15,000 a month during the course of their career, EPS contributions would still be restricted to 8.33% of Rs 15,000.
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