EPFO’s Higher Pension Option Is Back: Who Will Actually Benefit?

The Employees’ Provident Fund Organisation (EPFO) has brought back the earlier option that allowed some employees to link pension contributions to their full salary instead of the wage ceiling. This move has offered relief to a limited set of members who had already chosen the higher pension route in the past.

However, it is important to understand that this is not a new benefit for everyone. The restored option will help only a small group of eligible employees, and most EPFO subscribers may not see any change in their pension payouts.

What Changed In 2014?

In 2014, the government introduced two major changes to the Employees’ Pension Scheme (EPS):

• The minimum monthly pension was fixed at ₹1,000
• The pensionable salary was capped at ₹15,000 per month

This cap meant that even if an employee earned far more than ₹15,000, their pension would still be calculated only on ₹15,000. As a result, the maximum pension became limited to roughly ₹7,500 per month.

Employees who joined EPFO after this change and earned above ₹15,000 were not allowed to opt for pension calculation based on their actual salary.

How EPF And Pension Contributions Work

Under EPFO rules, both the employer and employee contribute 12% of basic salary towards the Provident Fund (PF). Out of the employer’s contribution, a portion goes into the Employees’ Pension Scheme (EPS).

In many workplaces, PF contributions are calculated on the wage ceiling rather than the full salary. Since pension is based on pensionable salary, this often leads to lower monthly pension payouts for employees.

The Earlier Higher Pension Option

Before the 2014 amendment, employees had the option to contribute towards pension based on their actual salary. This option was more commonly used in organised sectors, especially public sector undertakings (PSUs), where employers were more willing to contribute higher amounts.

In such cases, some employees received pension amounts that were much closer to their last drawn salary.

After the 2014 cap, the option was effectively discontinued, and there was confusion even for employees who had opted earlier.

What Does the Restoration MeanNow?

The recent clarification restores the earlier option of contributing to EPS based on actual salary. But this benefit applies only to employees who had already exercised the higher pension option before 2014.

It does not automatically extend to all EPFO members.

Another key condition is that the employer must agree to contribute a higher amount. Employees cannot opt for it on their own without employer support.

Who Will Actually Benefit?

This restoration is likely to benefit a small group of EPFO members, mostly those in PSUs and organised workplaces who had chosen the higher pension option earlier.

For most private sector employees, where PF contributions are still limited to the wage ceiling, pension payouts are expected to remain modest.

Conclusion

EPFO’s restored higher pension option is meaningful, but only for a limited group of eligible employees. It mainly helps those who had opted for higher pension contributions before 2014 and whose employers are willing to continue supporting higher payments. For the majority of subscribers, the pension will still be calculated using the wage ceiling, keeping retirement payouts relatively low.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.