The government may raise its contribution to the employees’ pension fund marginally to raise monthly pension payout to over 5 crore salaried persons covered under the Employees Provident Fund (EPF) Act. A corresponding increase in the contribution of the employer’s contribution to the pension funds of these workers would take the minimum pension to R1,000 a month.
Employees with a basic pay of up to R6,500 in establishments that have 20 or more workers are eligible for the mandatory PF and pension schemes. The employee contributes 12% of his/her basic salary to the provident fund and a matching contribution is made by the employer. Of the employer’s contribution, 8.33% (of basic pay) goes to the pension fund, to which the government also contributes 1.16% of the basic pay.
A sub committee of the Employees Provident Fund’s Board of Trustees has suggested that to bring the minimum pension of employees covered under provident fund act to R1,000 per month, either the government or employer need to raise its contribution by 0.6% of the basic pay of its employees.
The government is veering around the view that its contribution to the pension fund will be increased by half that amount, that is 0.3% of the basic pay and concomitantly, the employer will also hike his contribution to the pension fund of the employee by the same amount. Of course, the employer’s overall outgo owing to the EPF scheme would remain the same as 12% of the basic pay.
According to labour ministry officials, the government is considering to share this hike with employers, which means both the employers and government would hike their contributions to the pension fund by 0.3% each. The burden for this increase on the government will be R200 crore.
Labour and employment secretary PC Chaturvedi confirmed the development. “The committee has made its suggestion. We have not taken any final call on that, the board of trustee will do that. We need to see, how we can work this out,” he told Financial Express.
The committee has also given another option which would have come as a big benefit to the employees. It suggested that the government can fix a minimum pension of R1,000, along with a 3% incremental hike for a specific period of time.
The labour ministry official said the second option has been completely ruled out.
“It was not feasible for the government at all. It would have added huge financial burden,” he said. Earlier, a parliamentary committee had asked the central government to increase the rate of contribution from the government to pension fund should be at least fixed at half of the rate of contribution made by employers.