Four-month window to increase your pension contribution to open — all you need to know

The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 originally did not provide for any pension scheme. In 1995, through an amendment, a scheme was formulated for employees' pensions, wherein the pension fund was to comprise a deposit of 8.33 percent of the employers' contribution towards provident fund corpus.

At that point in time, the maximum pensionable salary was Rs 5,000 per month which was later raised to Rs 6,500.

While the employee's entire part goes to EPF (subscribers contribute 12 percent of their basic salary and Dearness Allowance), the employer's contribution goes to EPS at a rate of 8.33 percent. After the employee retires, the plan provides a steady stream of income.

The EPS amendment of August 22, 2014 raised the pensionable salary cap to Rs 15,000 a month from Rs 6,500 a month and allowed members along with their employers to contribute 8.33 percent on their actual salaries (if it exceeded the cap) towards the EPS. It gave all EPS members, as on September 1, 2014, six months to opt for the amended scheme.

The amendment, however, required such members to contribute an additional 1.16 percent of their salary exceeding Rs 15,000 a month towards the pension fund.

While not too many employees had opted to contribute based on their actual salaries, the Supreme Court order means that EPFO members and employers now have four months to opt for a pension scheme linked to actual salaries.

This would essentially imply higher annuity after retirement.

The court has given the option of pension on higher earnings to subscribers of exempted provident fund trusts also.

This may take time as EPFO needs to issue a detailed notification on the same. Once that is in place, eligible employees can jointly opt with the employer for enhanced coverage.