Kozhikode: The latest decision of the Employees Provident Fund Organisation (EPFO) to implement the pro rata system to calculate higher pension is expected to lead to an almost one-third reduction in the pension amount for subscribers who had given the option for the higher pension scheme. According to estimates, the move will adversely affect over 13 lakh EPFO members, who retired after September 1, 2014 and current employees who opted for the scheme.

Under the pro rata system, the pension of this category of members would be calculated separately for the service before and after September 2014. This is different from the previous system, under which pension was based on the average salary of 60 months before retirement. Consequently, when pro rata is implemented, the member will not receive the full pension amount proportional to the high salary received at the time of retirement.

Even though the Supreme Court had issued an order on November 4 last year to allot higher pensions, the EPFO submitted a report before the Central Board of Trustees that there was no formula to calculate higher pensions proportional to the salary in the EPF pension scheme (EPS 95). As a result, the method of calculating the higher pension would be the same as that for the members currently making contributions of their share to the pension fund, said the EPFO. However, the EPFO had failed to mention this fact in its circular issued on June 1 this year which dealt with the procedure for calculating higher pension.

The reply from the regional office of EPFO in Salem to the Airports Authority of India on the pension of an employee also said that the amount was calculated based on the pro rata system.

Pro-rata system
Under the pro-rata system, pension is calculated separately from November 1995 – when EPS was launched – to September 2014 and during the period afterwards. While the maximum contribution to the pension till August 31, 2014, was based on a salary of Rs 6,500, it was Rs 15,000 afterwards. 

At the same time, it is pointed out that those who opted for the higher pension had to contribute 8.33 per cent of their gross salary to the pension fund from the day the scheme was launched. As the same contribution had to be made before and after September 2014, it was unjust to calculate different pensions based on this date, said the affected members.