EPF and Pension Schemes Consolidation: What Changes for Employees and Employers

Introduction to the Regulatory Framework

The Employees’ Provident Fund Organisation (EPFO) serves as one of the world’s largest social security institutions, administering retirement benefits for millions of workers across India through its EPF and Pension Schemes. The legal foundation for this entire system rests upon the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 [1], which came into force to provide compulsory contributory benefits including provident fund, pension, and insurance schemes for employees in organized sector establishments. This legislation extends to the whole of India and applies to every establishment which is a factory engaged in any industry specified in Schedule I and in which twenty or more persons are employed.

Under this Act, the Central Government framed the Employees’ Pension Scheme, 1995 through the powers conferred by Section 6A [2]. This section specifically empowers the government to frame a scheme for providing superannuation pension, retiring pension or permanent total disablement pension to employees, along with widow or widower’s pension, children pension or orphan pension payable to the beneficiaries of such employees. The scheme officially came into force on November 16, 1995, replacing the earlier Employees’ Family Pension Scheme, 1971, and has since undergone multiple amendments to address evolving workforce needs and economic realities.

Understanding the Current Contribution Structure Under EPF and Pension Schemes

The contribution architecture under the EPF and pension schemes operates through a carefully designed dual-funding mechanism. Employers are mandated to contribute twelve percent of the employee’s basic wages and dearness allowance to the provident fund account. From this employer’s contribution, 8.33 percent is diverted to the Employees’ Pension Scheme, while the remaining 3.67 percent goes to the EPF account. Employees contribute an equal twelve percent of their basic wages to the EPF, though they have the option to contribute more than this statutory minimum if they wish to do so.

Additionally, the Central Government contributes 1.16 percent of the pay of members to the pension fund through budgetary support. This contribution from the government was established to strengthen the sustainability of the pension scheme and ensure adequate funds for pension disbursement. However, these contributions are subject to a wage ceiling, which has been progressively revised over the years. Initially set at Rs. 5,000 per month when the scheme was launched, the ceiling was raised to Rs. 6,500 and subsequently to Rs. 15,000 per month from September 1, 2014. This means that regardless of an employee’s actual salary, the maximum pensionable salary considered for contribution purposes is Rs. 15,000 per month under normal circumstances.

The wage ceiling has been a subject of considerable litigation and policy debate. While it ensures manageable administrative costs for employers, it also results in inadequate pension amounts for employees who draw higher salaries. Recognizing this limitation, paragraph 11(3) of the original EPS-95 provided employees with an option to contribute on higher or uncapped salary to receive enhanced pension benefits upon retirement. This provision allowed both employers and employees to jointly opt for contributing pension on actual salary exceeding the wage ceiling, thereby enabling better retirement security for higher-earning employees.

The Landmark Supreme Court Judgment on Higher Pension

The landscape of pension entitlements underwent a transformative shift following the Supreme Court judgment delivered on November 4, 2022, in Civil Appeal No. 8143-8144 of 2022 arising from SLP (C) Nos. 8658-8659 of 2019 [3]. This landmark case, officially titled Employees’ Provident Fund Organisation and others versus Sunil Kumar B. and others, addressed long-standing grievances of employees seeking to avail higher pension based on their actual salary rather than the restricted wage ceiling.

The genesis of this litigation traces back to the 2014 amendment to the EPS-95, which omitted paragraph 11(3) that previously allowed employees to exercise the joint option for higher pension contribution. When the amendment increased the wage ceiling from Rs. 6,500 to Rs. 15,000, it simultaneously removed the provision enabling employees to opt for pension on higher wages. This amendment was challenged in various High Courts across the country, with the Kerala High Court, Rajasthan High Court, and Delhi High Court all delivering judgments in favor of employees, holding that the removal of the option was arbitrary and violated the legitimate expectations of employees who had been contributing on higher wages.

The Supreme Court, after hearing extensive arguments from both the EPFO and employee representatives, delivered a comprehensive judgment that restored the right of employees to opt for higher pension. The court observed that employees who were members of the EPF before September 1, 2014, should not be deprived of the option to contribute on higher wages merely because they had not exercised this option earlier. The judgment recognized that many employees were unaware of this option due to lack of proper communication from employers and the EPFO.

Following the Supreme Court’s directions, the EPFO issued multiple circulars to implement the judgment. The first circular dated December 29, 2022, provided initial guidelines for eligible employees to exercise their option for higher pension [4]. Subsequently, a detailed circular dated February 20, 2023, clarified various aspects of implementation, including the categories of eligible employees, the procedure for filing applications, the calculation methodology for differential contributions, and the timeline for submitting applications. The deadline for eligible employees to exercise their option for higher pension was initially set for three months from the date of the first circular but was later extended to July 11, 2023, considering the complexities involved in compiling historical data and calculating differential amounts.

The judgment excluded two categories from eligibility for higher pension. First, employees who retired prior to September 1, 2014, without having exercised the joint option under paragraph 11(3) before their retirement were not eligible, as they had already exited the membership. Second, employees who joined on or after September 1, 2014, with reckonable salary over the statutory threshold of Rs. 15,000 per month were also excluded, as the amended provisions applicable from that date did not provide for the higher pension option for new entrants.

Implementation of the Centralized Pension Payment System

A significant operational reform that has fundamentally changed pension disbursement is the implementation of the Centralized Pension Payment System, which became operational across all regional offices from January 2025 [5]. This system addresses a long-standing grievance of pensioners who faced difficulties when relocating to different cities or states, as they were previously required to transfer their Pension Payment Orders to banks in their new location, a process that often involved considerable delays and administrative hurdles.

Under the CPPS, pensioners can now access their monthly pension from any bank, any branch, and any location across the country without the need to transfer their PPO. The system operates on a centralized digital platform that interfaces with all banks authorized for pension disbursement. In January 2025, approximately 69.4 lakh pensioners received their pensions through CPPS, with an impressive success rate of 99.9 percent, demonstrating the system’s reliability and effectiveness. The EPFO has emphasized the need to transition progressively to the Aadhaar-Based Payment System to ensure that pension payments are credited directly into Aadhaar-linked bank accounts, providing enhanced security and reducing the scope for fraudulent withdrawals.

The implementation of CPPS represents a major stride in the EPFO’s broader IT modernization project known as CITES 2.01. This comprehensive digital transformation initiative aims to simplify processes, reduce paperwork, enhance transparency, and provide seamless services to members and pensioners. The project includes the digitization of historical records, automation of claim processing, real-time tracking of applications, and integration with other government databases for verification purposes.

Proposed Minimum Pension Revision and Dearness Allowance

One of the most anticipated reforms in the pension scheme relates to the revision of the minimum pension amount. Currently, pensioners under EPS-95 receive a minimum pension of Rs. 1,000 per month, an amount that has remained largely unchanged since 2014 when it was first introduced through government budgetary support. This minimum pension, while providing a basic safety net, has proven inadequate to meet the rising cost of living and inflation over the years. Approximately 47 lakh pensioners currently receive monthly pensions below Rs. 9,000, highlighting the financial vulnerability of a substantial section of the retired workforce.

The Central Board of Trustees of EPFO has been actively considering a proposal to significantly increase the minimum pension to Rs. 7,500 per month [6]. This proposed revision has been under discussion in multiple board meetings throughout 2024 and 2025, with extensive deliberations on funding mechanisms, financial sustainability, and implementation timelines. The proposal also includes the introduction of a Dearness Allowance component linked to the All India Consumer Price Index, which would ensure periodic adjustments to pension amounts in line with inflation. This DA component would align the pension structure of EPFO pensioners with that of central and state government pensioners who have long benefited from regular inflation-linked revisions.

The funding for this proposed increase would require additional budgetary allocation from the Central Government, as the existing corpus of the Employees’ Pension Fund alone cannot sustain such a significant enhancement. The government would need to provide supplementary contributions to bridge the gap between the current pension payouts and the proposed higher amounts. The implementation timeline, initially expected around April or May 2025, depends on the finalization of these funding arrangements and the approval of the necessary notifications by the Ministry of Finance and the Ministry of Labour and Employment.

The Employees’ Enrolment Scheme 2025

To address historical gaps in EPF coverage and promote voluntary compliance, the government launched the Employees’ Enrolment Scheme 2025 on November 1, 2025, during the 73rd Foundation Day celebrations of EPFO [7]. This scheme provides a special six-month window, from November 1, 2025, to April 30, 2026, for employers to voluntarily register workers who should have been covered under EPF between July 1, 2017, and October 31, 2025, but were inadvertently left out or deliberately excluded from coverage.

Under this scheme, establishments can declare eligible employees through the EPFO portal by submitting relevant employee details and employment records. The scheme offers significant relief to employers by waiving the employee’s share of contribution if it was not deducted during the period in question. Employers, however, must remit their share of contribution along with interest calculated under Section 7Q of the EPF Act, administrative charges as applicable, and a nominal one-time penalty of Rs. 100 per establishment covering all three schemes operated by EPFO.

The scheme applies to all establishments, whether already covered under EPF or not, and extends to those facing inquiries under Section 7A of the EPF Act, Para 26B of the EPF Scheme, or Para 8 of the EPS-95, provided the damages are capped at Rs. 100 notionally for the purpose of the scheme. This initiative aims to bring more workers into the social security net, ensuring they receive the retirement benefits they are entitled to while simultaneously allowing employers to regularize their compliance status without facing prohibitive penalties.

Implications for Employers and Compliance Requirements

The consolidation and modernization of EPF and pension schemes have significant implications for employer responsibilities and compliance obligations. Employers must maintain accurate records of employee wages, contributions, and service periods, as these form the basis for calculating pension entitlements. The option for higher pension has created additional administrative requirements, as employers must now respond to employee requests for historical contribution data and provide necessary certifications for joint option forms.

Under Para 26(6) of the EPF Scheme, 1952, employers and employees must jointly exercise the option to contribute on higher wages [8]. This joint option must be documented properly and submitted to the Regional Provident Fund Commissioner. Employers who have been remitting contributions on actual salaries exceeding the wage ceiling without proper joint option forms on record must now assist employees in obtaining retrospective permissions and providing proof of such contributions through remittance statements, monthly contribution challans, and ECR returns.

The financial implications for employers opting for higher pension contributions are substantial. Not only must they contribute 8.33 percent on the full actual salary instead of the capped amount, but they may also be required to remit differential contributions for past service periods under EPF and pension schemes. However, employers are not required to pay the employee’s share of differential contribution if the employee funds it from their accumulated EPF balance or pays it separately.

Legal Precedents and Case Law Analysis

Apart from the landmark Sunil Kumar B. judgment, several other judicial decisions have shaped the interpretation and implementation of EPF and pension provisions. The R.C. Gupta case decided by a two-judge bench of the Supreme Court in 2016 was a significant precedent that first questioned the validity of restricting the option for higher pension. This case set the stage for subsequent litigation in various High Courts and eventually led to the comprehensive adjudication in the 2022 judgment [9].

The courts have consistently held that social security legislation must be interpreted liberally in favor of employees, as these laws are designed to provide economic security to workers and their families. The judiciary has repeatedly emphasized that employees cannot be deprived of pension benefits on technical grounds or due to lack of awareness about their rights. These principles have guided the EPFO in framing its circulars and procedures for implementing the higher pension scheme.

Future Directions and Policy Considerations

Looking ahead, the EPF and pension schemes are likely to undergo further refinements based on feedback from implementation experiences and emerging socio-economic needs. There are ongoing discussions about linking pension amounts more closely to actual contributions and service periods, exploring annuity-based models for pension calculation, integrating pension benefits with health insurance schemes like Ayushman Bharat, and creating more flexible withdrawal options for specific life events.

The EPFO has been working on enhancing its digital infrastructure to provide real-time account access, instant claim processing, and comprehensive online services that eliminate the need for physical visits to EPFO offices. The Universal Account Number system has been strengthened to ensure portability of accounts across different employers and locations. The organization is also exploring the use of artificial intelligence and data analytics to detect fraud, identify inoperative accounts, and reach out proactively to eligible beneficiaries within EPF and pension schemes.

The sustainability of the pension fund remains a critical concern, particularly given the demographic transition India is experiencing with an aging population and increasing life expectancy. The government may need to consider periodic revisions to contribution rates, wage ceilings, and pension formulas to ensure the long-term viability of the scheme while maintaining adequate benefit levels for retirees.

Conclusion

The consolidation and modernization initiatives in the EPF and pension schemes represent a comprehensive effort to strengthen social security coverage for Indian workers. The Supreme Court judgment on higher pension has vindicated the rights of employees who contributed on higher wages, while the CPPS has revolutionized pension disbursement by eliminating geographical barriers. The proposed increase in minimum pension and introduction of dearness allowance, once implemented, will provide much-needed financial relief to millions of pensioners struggling with inadequate retirement income.

For employees, these changes offer enhanced retirement security and greater flexibility in accessing their benefits. For employers, the reforms necessitate more rigorous compliance and documentation but also provide opportunities through schemes like the Employees’ Enrolment Scheme 2025 to regularize past lapses. The success of these initiatives will ultimately depend on effective implementation, adequate funding, robust technology infrastructure, and continued engagement between the government, employers, employees, and the EPFO. As India’s workforce continues to grow and evolve, the EPF and pension schemes must adapt to ensure that every worker can retire with dignity and financial security.

References

[1] Employees’ Provident Fund Organisation. (1952). The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. https://www.epfindia.gov.in/site_docs/PDFs/Downloads_PDFs/EPFAct1952.pdf 

[2] Indian Kanoon. (n.d.). Section 6A in The Employees’ Provident Funds And Miscellaneous Provisions Act, 1952. https://indiankanoon.org/doc/1773967/ 

[3] Employees’ Provident Fund Organisation. (2023). Circular on Implementation of Supreme Court Judgment dated 04.11.2022. https://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2023-2024/Circular_Pension_2061.pdf 

[4] Employees’ Provident Fund Organisation. (2023). Higher Pension FAQs. https://www.epfindia.gov.in/site_docs/PDFs/MiscPDFs/Higher_Pension_FAQs_Eng.pdf 

[5] DD News. (2025). EPFO retains interest rate on PF deposits at 8.25 per cent for 2024-25. https://ddnews.gov.in/en/epfo-retains-interest-rate-on-pf-deposits-at-8-25-per-cent-for-2024-25/ 

[6] Bajaj Finserv. (2025). ₹7,500 EPFO Minimum Pension Hike Passed in May 2025. https://www.bajajfinserv.in/investments/epfo-minimum-pension-hike 

[7] Paytm. (2025). Government Launches EPFO Employees’ Enrolment Scheme 2025. https://paytm.com/blog/news/epfo-employees-enrolment-scheme-2025/ 

[8] Employees’ Provident Fund Organisation. (1995). Employees’ Pension Scheme, 1995. https://www.epfindia.gov.in/site_docs/PDFs/Downloads_PDFs/EPS95.pdf 

[9] ClearTax. (2025). Higher Pension Scheme in EPFO: Guidelines, Form, Calculation. https://cleartax.in/s/higher-pension-scheme-epfo