The Employees' Pension Scheme (EPS)-2026, recently approved by the Central Board of Trustees of the Employees' Provident Fund Organisation (EPFO), has removed a controversial provision that earlier allowed employees to opt for pension based on a higher salary.

The revised scheme has been drafted to align with the implementation of the Code on Social Security, which came into force in November last year.

What clause has been removed?

The clause removed from the new scheme is paragraph 11(4) of the earlier EPS-1995 rules.

This provision had allowed employers and employees to exercise a one-time option within a year to contribute to the pension fund on salaries above the ₹15,000 monthly wage ceiling, enabling employees to receive a higher pension after retirement.

According to the official agenda document for the EPFO board meeting held in early March, the clause has been dropped because it is now considered "obsolete."

Background of the higher pension option

The provision was introduced during amendments to the EPS in August 2014, replacing an earlier rule that allowed an unlimited option for higher pension contributions.

Under the revised rule, employees and employers were required to jointly opt for higher contributions within a one-year window during 2014-15.

However, many employees later argued that they were unable to exercise this option due to confusion over the cut-off date and interpretation of the rules by authorities.

Supreme Court intervention

In November 2022, the Supreme Court allowed eligible employees and pensioners to apply for higher pension benefits under the EPS scheme.

Following the judgment, the government allowed fresh applications for higher pension.

In a statement to the Lok Sabha last December, the government said that around 15.24 lakh applications from employees and pensioners had been forwarded to the EPFO by employers until January 31, 2025, which was the last date for submissions.

Out of these:

• 3.93 lakh demand letters were issued to applicants
• 2.33 lakh applicants deposited the required additional contribution or gave consent
• Around 1.24 lakh applicants were issued pension payment orders

EPFO's earlier concerns

Earlier, the EPFO had opposed the demand for higher pension on the grounds that the EPS-1995 scheme was designed primarily to support lower-income workers.

Officials argued that allowing higher-paid employees to draw larger pensions created a "reverse subsidy", where workers contributing less proportionately could receive higher benefits.

The EPFO had also pointed to an actuarial deficit in the pension fund as a reason for restricting such provisions.

What the new EPF rules say

Although the EPS-2026 scheme does not include a specific provision for higher pension on wages beyond the cap, the new Employees Provident Fund Scheme rules still allow some flexibility.

Under paragraph 9(iv) of the new rules, an employee and employer can jointly submit a written request to contribute to the provident fund based on wages exceeding the wage ceiling.

Employees may also make additional voluntary contributions, although employers are not obligated to match these contributions.

The changes are part of a broader restructuring of pension and provident fund regulations under the Code on Social Security, which aims to streamline retirement benefit systems in India.