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Pension concerns: On the EPFO recommendation

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Pension concerns: On the EPFO recommendation

  • Recently the Central Board of Trustees of the Employees’ Provident Fund Organisation (EPFO) recommended for a 0.1-percentage-point increase in provident fund (PF) deposits for 2023-24
  • It is in tune with what the EPFO did last year.

Key Highlights

  • However, the recommended rate of 8.25% is 0.4-percentage points lower than in 2018-19, a pre-election year like 2023-24.
  • Months ago, the Finance Ministry had rejected a proposal to double the minimum pension amount, citing a “huge rise” in the budgetary support needed under the Employees’ Pension Scheme (EPS), 1995.
  • There is one more component in the budgetary support which refers to the Central government’s contribution at 1.16% of wages up to an amount of ₹15,000 a month.
  • The Finance Ministry calculates that a 100% rise in the minimum pension would be more than the proportionate increase in the overall budgetary support
    • As numerous pensioners had received much less than ₹1,000 as monthly pension till 2014.
  • Describing the EPS as a “Defined Contribution-Defined Benefit” social security scheme,
    • The government said in the Rajya Sabha that all benefits were paid out of accumulations through contributions
    • And as per the fund’s valuation as on March 31, 2019, there was “an actuarial deficit.
  • However, this argument has been virtually demolished in the EPFO’s annual report (2022-23).
  • Notwithstanding its reasons not to hike the minimum pension, the government must note that the difference between the minimum and original pension was about ₹970 crore for 2022-23.
  • So, the doubling of the minimum pension is no strain.
  • In the case of higher PF pension, the rules have been framed after the 2022 Supreme Court judgement wherein most of the pre-2014 retirees would not be covered;
    • There are around four lakh such applications for higher pension. A more expansive approach to PF pension matters will help senior citizens.

Prelims takeaway

  • Employees’ Provident Fund Organisation (EPFO)
  • Employees’ Pension Scheme (EPS), 1995

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