The Employees' Provident Fund Organisation (EPFO) is roping in Life Insurance Corporation (LIC) and Pension Fund Regulatory and Development Authority (PFRDA) among others for reforming employee pension scheme (EPS) to pay higher pension to subscribers.
Besides, it is likely to rope in a couple of mutual funds and investment firms, V.V. Giri National Labour Institute, independent financial experts, and actuaries to help it draw up a framework that will aid enhanced contribution and higher pension for EPFO subscribers.
This is especially for all those subscribers who are earning more than the mandatory threshold of over Rs 15,000 per month but are not being able to invest more for better pension returns. It means EPF subscribers who have more than Rs 15,000 monthly basic wage but are forced to contribute lower can contribute more to the employee pension scheme (EPS) and earn a better pension after they turn 58 years of age.
A small committee of experts from LIC and independent actuaries have already met EPFO authorities in the past two and a half months, according to officials with knowledge of the development and official documents reviewed by Moneycontrol.
“A committee has been constituted with six members including experts from LIC...and actuary vide order dated 23.12.2021. Three meetings of the said committee have taken place. The report is yet to be finalised,” as per official documents reviewed by Moneycontrol.
And the retirement fund manager EPFO under the union labour ministry is set to expand its scope by bringing in new expertise to broad-base the exercise. A Central Board of Trustees (CBT) member of the EPFO said Labour Minister Bhupendra Yadav has told the board that a task force is going to look into the issue with experts from different fields including LIC and PFRDA.
“Currently the pension contribution is limited and this leads to low pension payment after retirement. But a section of the employees and employers are demanding an enhanced pension contribution and enhanced pension pay-out. This is not allowed under the EPF Act and the constituent EPS scheme,” said a CBT member requesting not to be named.
“Some even argue that it’s better to take pension deductions from all subscribers based on their actual salary beyond the Rs 15,000 per month wage cap. Hence the need,” another source said.
Another CBT member said the expanded team of experts along with EPFO are likely to deliberate if the Rs 15,000 mandatory salary cap for pension contribution can be relaxed. Second, can individual subscribers decide on their payment and based on it expect a higher pension. Third, they may also explore the financial health of the EPS, and its viability and ability to effect a massive pension reform, and fourth, possibly if at all this can be done in collaboration with any other government body. CBT is the apex decision making body of EPFO headed by the union labour minister, and comprises government authorities, employers and employees’ representatives
Of the total 24 percent statutory EPFO contributions by both employees and employers every month, 8.33 percent goes to EPS (employee pension scheme) and the rest to EPF. While withdrawing from EPFO on account of any reason including job loss, EPF subscribers often withdraw all their savings, including the pension amount. This, according to the retirement fund body negates the purpose of pension benefit provisions.
“The task force may crystallise and draw broad contours…prepare the structure with perspective, international experiences and challenges. The details will emerge in the next three to four months and a fairground assessment may be presented during the next board meeting of EPFO,” the second board member said requesting anonymity.
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