Good news for private sector workers: Massive hike in pension

If a retired person from the private sector was earlier entitled to a pension of Rs 6,857, he will now get Rs 22,857

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New Delhi: The Supreme Court has cleared the way for a higher basis of pension for private sector employees. The Supreme Court has dismissed the special appeal of the Employees’ Provident Fund Organisation (EPFO) registered against the Kerala High Court’s verdict. The private sector employees will, therefore, get more pension.

[pullquote]Calculation of pension

If the number of years spent by the employee working for the given employer = n

If the final salary = s

The pension = (n+2)s/70[/pullquote]

The Kerala High Court had asked the EPFO in one of its orders that retired employees should get pensions on the basis of their last salary.

Against this order of the court, the EPFO appealed to the Supreme Court. So far, EPFO has been paying employees within an upper limit. Till date, the EPFO has been paying pension only up to a maximum basic salary of Rs 15,000.

The calculation of pension is done like this: The sum of the total years spent by the employee working for the given employer (n) and 2 multiplied by the final salary (s) divided by 70 = (n+2)s/70.

Say, the final salary of an employee who worked for 30 years is Rs 50,000. According to the Supreme Court order, his pension will be Rs 32 x 50,000 ÷ 70 = Rs 22,857 p 14. Under the old rule, this pension could not have been greater than Rs 32 x 15,000 ÷ 70 = Rs 6,857 p 14.

The older, pre-2014 rule was worse. The maximum basic salary for the calculation of pension was Rs 6,400. That meant, by the calculation above, the retired person would get a pension no more than Rs 2,925 p 71 per month.

In fact, it was even worse. Because, instead of considering the employee’s last salary, the authority would calculate his average salary in the final five years. In the cases of many employees, the final salary would be higher than this average, making him or her lose out on the post-retirement pecuniary benefit.

The matter reached the Kerala High Court, which ended the five-year average rule and reduced the period to a year, the final one. That is, the pension would be based on the average salary drawn by the employee in his last 12 months of work.

When even this was not ensured by some employers, aggrieved retired people took the matter further up to the Supreme Court. The highest court in 2016 ordered to pay the pension on the basis of full salary.

The EPFO, now burdened by a higher liability, approached the apex court against the Kerala High Court verdict. The rejection of EPFO’s plea on Monday paves the way for a more comfortable life of the elderly.

But implementation remains an issue