Amendments to EPS '95: Significant Changes and Implications
The government of India issued a Gazette notification (GSR Nos. 688 (E) dated September 26, 2008) incorporating several amendments. These are:
1. Amendment to Para 12 (7).
2. Deletion of Para 12 A.
3. Deletion of Para 13.
These amendments have far-reaching consequences by substantially altering the benefit package of the EPS '95 to the detriment of workers' interests.
First Amendment: Increase in Pension Reduction Rate
The first amendment to Para 12 (7) increases the rate by which the pension amount is reduced in the case of early pension (availed by those who have completed 50 years of age but are below 58) from 3 percent to 4 percent. This results in an immediate reduction in the pension quantum.
For example, if the eligible pension on completing 58 years of age is Rs 1000 per month and the employee exits the job at 50 years of age due to resignation, retrenchment, illness, or otherwise, they would receive an early pension with a 3 percent reduction per year, i.e., 24 percent reduced from the monthly pension, resulting in Rs 760 per month. This reduction rate is now enhanced to 4 percent, making the reduction 32 percent, or Rs 680 per month.
Second Amendment: Elimination of Pension Commutation Option
The second amendment (deletion of Para 12 A) eliminates the option for pension commutation. The existing provision allowed a member to commute up to one-third of their pension to receive a hundred times the monthly pension. This facility was available from November 16, 1998, onwards.
For instance, if the eligible pension is Rs 1000 per month and the pensioner opts to commute one-third of their monthly pension, the commuted value would be 1/3 x 1000 x 100 = Rs 33,333, paid at the time of exercising the commutation option. The balance pension payable monthly would be Rs 667.
This commutation option is now abolished. Pensioners are denied the opportunity to commute one-third of their monthly pension and avail a lump sum for exigencies like family marriage, kin's death, medical expenses, etc. The concept of commutation, a universal component of any pension scheme, is arbitrarily removed.
Third Amendment: Removal of Return of Capital Options
The third amendment (deletion of Para 13) removes the existing option for a member eligible for pension to draw reduced pension and avail a return of capital under any of the three alternatives provided. Unlike commutation, the return of capital option must be exercised when applying for a pension.
The three alternatives were:
i. A pensioner could opt for a revised pension of 90 percent of the original pension with a return of capital equal to 100 times the original monthly pension payable to the nominee upon the member's death.
ii. A pensioner could opt for a revised pension of 90 percent of the original monthly pension; the widow could opt for a revised pension of 80 percent upon the husband's death; the nominee could exercise this option upon the widow's remarriage. In these cases, the return of capital would be 90 times the original monthly pension.
iii. A pensioner could opt for a fixed pension for 20 years, regardless of whether the member lived for that period. Under this option, the member could avail 87.5 percent of the original monthly pension for 20 years, with a return of capital equal to 100 times the original monthly pension at the end of 20 years.
All these alternative options for availing return of capital are now eliminated.
Regards,
Pkjain
From India, Delhi
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81The government of India issued a Gazette notification (GSR Nos. 688 (E) dated September 26, 2008) incorporating several amendments. These are:
1. Amendment to Para 12 (7).
2. Deletion of Para 12 A.
3. Deletion of Para 13.
These amendments have far-reaching consequences by substantially altering the benefit package of the EPS '95 to the detriment of workers' interests.
First Amendment: Increase in Pension Reduction Rate
The first amendment to Para 12 (7) increases the rate by which the pension amount is reduced in the case of early pension (availed by those who have completed 50 years of age but are below 58) from 3 percent to 4 percent. This results in an immediate reduction in the pension quantum.
For example, if the eligible pension on completing 58 years of age is Rs 1000 per month and the employee exits the job at 50 years of age due to resignation, retrenchment, illness, or otherwise, they would receive an early pension with a 3 percent reduction per year, i.e., 24 percent reduced from the monthly pension, resulting in Rs 760 per month. This reduction rate is now enhanced to 4 percent, making the reduction 32 percent, or Rs 680 per month.
Second Amendment: Elimination of Pension Commutation Option
The second amendment (deletion of Para 12 A) eliminates the option for pension commutation. The existing provision allowed a member to commute up to one-third of their pension to receive a hundred times the monthly pension. This facility was available from November 16, 1998, onwards.
For instance, if the eligible pension is Rs 1000 per month and the pensioner opts to commute one-third of their monthly pension, the commuted value would be 1/3 x 1000 x 100 = Rs 33,333, paid at the time of exercising the commutation option. The balance pension payable monthly would be Rs 667.
This commutation option is now abolished. Pensioners are denied the opportunity to commute one-third of their monthly pension and avail a lump sum for exigencies like family marriage, kin's death, medical expenses, etc. The concept of commutation, a universal component of any pension scheme, is arbitrarily removed.
Third Amendment: Removal of Return of Capital Options
The third amendment (deletion of Para 13) removes the existing option for a member eligible for pension to draw reduced pension and avail a return of capital under any of the three alternatives provided. Unlike commutation, the return of capital option must be exercised when applying for a pension.
The three alternatives were:
i. A pensioner could opt for a revised pension of 90 percent of the original pension with a return of capital equal to 100 times the original monthly pension payable to the nominee upon the member's death.
ii. A pensioner could opt for a revised pension of 90 percent of the original monthly pension; the widow could opt for a revised pension of 80 percent upon the husband's death; the nominee could exercise this option upon the widow's remarriage. In these cases, the return of capital would be 90 times the original monthly pension.
iii. A pensioner could opt for a fixed pension for 20 years, regardless of whether the member lived for that period. Under this option, the member could avail 87.5 percent of the original monthly pension for 20 years, with a return of capital equal to 100 times the original monthly pension at the end of 20 years.
All these alternative options for availing return of capital are now eliminated.
Regards,
Pkjain
From India, Delhi
Acknowledge(0)Amend(0)
Thank you for educating the EPF community on the above provisions. The reduction in pension before attaining 58 years of age is 4% each year, not a flat rate as stated above. To calculate the factor, kindly raise 0.96 to the power of 1 to 8. For example, if the claim is at 50 years, the factor will be 0.96 raised to the 8th power, i.e., 0.7214 or 72.14%, not 68%.
Regards,
Abbas.P.S
From India, Bangalore
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Regards,
Abbas.P.S
From India, Bangalore
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Amendment in Employees Pension Scheme, 1995.pdf
Employee Pension Scheme, 1995.doc