Govt may lift cap on EPF contributions in key push for savings scheme
Of an employer’s total contribution towards PF, 8.33% goes towards EPFO’s employees’ pension scheme and 3.67% goes towards PF every month
The Union government is considering doing away with caps on the share of an employee’s salary contributed towards pension to enable higher deductions by those who want higher retirement payouts, as part of a series of upcoming reforms, a senior labour ministry official said on Thursday.
An employer and worker both are required by law to contribute 12% of a person’s basic salary towards a corpus managed by the Employees’ Provident Fund Organisation (EPFO), the state-run retirement fund manager. Provident funds provide retirement benefits for nearly 67-million salaried Indians and often are the key corpus of lifetime savings for the working class.
Of an employer’s total contribution towards provident fund, 8.33% goes towards EPFO’s employees’ pension scheme and 3.67% goes towards provident fund every month, payable on a maximum wage ceiling of ₹15,000.
Under the EPF Act, employers need to make the pension contribution of 8.33% on a maximum of ₹15,000 for the employees joining the scheme after September 1, 2014 even if they draw a higher salary.
According to another provision, employees who were part of the pension scheme and joined service before September 1, 2014 could contribute 8.33% towards the pension scheme if they filed a new joint option with EPFO within six months, i.e. February 28, 2015.
The government is considering removing these caps such that, within the existing total contribution, more funds can be parked in the pension component.
“If an employee feels that more savings should go towards monthly pension and less towards the lump sum amount received at the time of retirement, it should be his or her choice,” the official cited above said.
“The government should first consider increasing the wage ceiling of ₹15,000, which is nothing in current times. That will itself increase the share of contributions going towards both provident fund and the pension scheme,” said TN Karumalaiyan, general secretary of the Centre for Indian Trade Unions (CITU).
The pension component was introduced by EPFO in November 1995. It is a social-security scheme that offers pension to employees in the organised sector. Provident-fund savings are mandatory under the Employees Provident Funds and Miscellaneous Provisions Act, 1952.
Meanwhile, officials also said EPFO has employed 4,300 people this year as on November 7, the official said. Hiring of another 5,000 are under way, apart from 60,000 appointments across central government departments.