June 2023 Update: EPS formula to be adopted for pension on higher wages

This update is further to our note on Employees’ Pension Scheme 1995 (‘EPS’) higher pension dated May 5, 2023, where we had indicated that while the deadline to apply for higher pension had been extended to June 26, 2023, EPFO was yet to clarify the method of computation of pension under the higher wages. We had also emphasised that this was a critical item, which EPFO is expected to clarify prior to the deadline for exercising the option for higher pension.

On June 14, 2023, the EPFO has uploaded Circular No Pension/ SC/ Higher Pension/ 2022/ 1357 dated June 1, 2023. This circular indicates the method of computation, as for now, for those opting for pension on higher wages, shall be in accordance with the provisions of EPS-95, as indicated below:

• Members who are eligible for pension on higher wages where date of commencement of pension is prior to September 1, 2014: Pension would be calculated on average monthly pay for contributory service over the last 12 months preceding the date of exit.
• Members who are eligible for pension on higher wages where date of commencement of pension is on or after September 1, 2014: Pension would be calculated on average monthly pay drawn during contributory service over the last 60 months preceding the date of exit.

In view of the above, the circular confirms that, for now, the existing pension formula that applies to all EPS-95 pensioners will also apply to those who choose higher EPS-95 pension option. The only difference is that the formula will be applied to the full / uncapped basic salary, as stated above.

WTW recommends that employers assess the financial implications of this option and prepare for its implementation. This includes conducting employee awareness sessions, drafting employee communication material and providing a pension calculator to enable employees to make an informed choice. WTW and its team of actuaries and pension experts, are available and will be happy to support you as required.

We will continue to monitor this space and share more updates when available. Please feel free to reach out to your WTW consultant or write to WTWIndia@willistowerswatson.com for any questions or guidance around understanding the impact of this judgement.