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Article | Global News Briefs

India: Ruling allows higher EPS pension benefits and contributions

By Jehangir Damkevala and Ritobrata Sarkar | January 17, 2023

Employers in India should start to prepare for certain employees to opt to increase their pension benefits and contributions in light of a recent Supreme Court ruling.
Retirement|Health and Benefits|Ukupne nagrade

Employer Action Code: Act

A recent Supreme Court ruling upholds most, but not all, of the significant changes made in 2014 to requirements for participating in and funding the social security Employees’ Pension Scheme, 1995 (EPS). The ruling also permits certain employees to elect by March 3, 2023, to base their EPS benefits and contributions (including for past service) on uncapped pay. Implementing such elections will be complex for employers and employees. The government issued limited guidance on December 29, 2022, but questions remain, and further guidance may be provided. The ruling may bring to an end several years of uncertainty following earlier High Court rulings rejecting elements of the 2014 changes. 

Since 1995, in addition to participating in the social security defined contribution Employees’ Pension Fund (EPF), eligible employees also participate in the defined benefit EPS, with the latter partially funded by diverted employer EPF contributions. A monthly pay cap (increased in 2014 to 15,000 Indian rupees from 6,500 rupees) applies for both participation and calculation purposes, though it’s very common for employers to provide supplemental EPF contributions on pay above the cap. Before September 2014, employees and employers could agree to base EPS contributions on uncapped pay (with EPS pension benefits calculated accordingly), but the 2014 changes eliminated this option for new EPS joiners and closed EPS participation to new entrants earning over the cap.

Key details

Under the November 4, 2022 Supreme Court ruling:

  • Present employees and certain retirees who were in service before September 1, 2014, may elect by March 3, 2023, to base their employer’s EPS contributions (and their EPS pension benefits) on uncapped pay. A positive election could apply to their entire period of EPS participation, with higher retroactive contributions payable to the EPS where the cap was exceeded (possibly funded by a transfer from the employee’s EPF account).
  • The EPS remains closed, since September 1, 2014, to individuals who have never participated in the EPS and whose earnings have been over the cap since the start of employment. 
  • For employees for whom EPS contributions are based on uncapped pay, the requirement introduced in 2014 for the employee to contribute to the EPS at 1.16% of pay in excess of the cap is eliminated (effective six months after the ruling).  

Employer implications

The deadline for employees to elect to have their employer’s EPS contributions (and their EPS pension benefits) based on uncapped pay is short. Employers should prepare for employees potentially opting to contribute more to the EPS prospectively, and to support the calculation of any retroactive higher contributions, the communication of these to employees and the EPF Organization, and the transfer of funds from EPF accounts to the EPS. Implementation questions remain, including whether the government will seek to require that employers pick up the 1.16% contribution that formerly was supposed to be paid by employees.


Jehangir Damkevala
Retirement Trust Consulting Leader
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Head of Retirement, India
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