EPS95 Expert Report

The Central Government vide Order No. R-15025 /3/2007/SS.II dated 12.06.
2009
appointed Expert Committee on Employees’ Pension Scheme, 1995 to look into the
Employees’ Pension Scheme 1995 and to give expert views.
Sh. S. K. Srivastava Chairman

Additional Secretary
Ministry of Labour & Employment
Joint Secretary(Social Security) Member
Ministry of Labour & Employment
Dr. K.C. Mishra Member
Director
National Insurance Academy, Pune
Sh. Nalin Thakor Member
President,
Social Security Research Centre, Ahmedabad
Sh. S.P. Subhedar Member
Fellow of Institute of Actuaries of India, AIA(UK), Retd. M.D. of
LIC of India
Sh. Bhudev Chatterjee Member
Actuary
Sh. Nirmal Ghosh Member
Organising Secretary
Indian National Trade Union Congress
Dr. R. Kannan Member
Actuary
Insurance Regulatory Development Authority
Sh. J.P. Chowdhary Member
Chairman & Managing Director (CIE)
Central Provident Fund Commissioner Member
Employees’ Provident Fund Organisation
Sh. Rajesh Bansal Member Secretary

Addl. Central Provident Fund Commissioner (Pension)
Employees’ Provident Fund Organisation
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REPORT OF THE EXPERT COMMITTEE ON EPS,1995

REPORT OF THE EXPERT COMMITTEE ON

EMPLOYEES' PENSION SCHEME, 1995

INDEX

S.No. Subject Page No.

1. Constitution of the Expert Committee on Employees’ Pension 4
Scheme, 1995

2. Background of Employees' Pension Scheme 1995 5

3. Features of the Employees' Pension Scheme 1995 7

4. Performance of the Employees' Pension Scheme 1995 9

5. Challenges Thrown By The Experience of Employees’ Pension 14
Scheme, 1995

6. Working of the Expert Committee 16

7. The Possible Alternative Scenarios: Existing Scheme 19

8. Provident Fund‐cum‐Pension Annuity Scheme – An Alternative 34

9. Summary of Final Recommendations 39

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APPENDICES

S.No. Appendix Page No.

1. Minutes of The First Meeting of The Expert Committee 43

2. Minutes of The Second Meeting of The Expert Committee 46

3. Minutes of The Third Meeting of The Expert Committee 56

4. Chronology of The Changes In Statutory Wage Limits Under EPF & 61
MP Act, 1952

5. Interest Earning Analysis 62

6. Analysis of Outgoing Payments Under Employees’ Pension 63
Scheme,1995

7. Report of The Valuer on Various Proposals Under Consideration of 65
The Committee @ 8%.

8. Report of The Valuer on Various Proposals Under Consideration Of 69
The Committee @ 7.5%.

9. Summary of The Comments of The Members of Expert Committee 73
on The Proposed Conceptual Draft

10. Comparison of The Proposed PFPAS (Provident Fund‐Cum‐ 78
Pension Annuity Scheme) With NPS (New Pension Scheme)

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CHAPTER 1

CONSTITUTION OF THE EXPERT COMMITTEE ON
EMPLOYEES’ PENSION SCHEME, 1995

1.1 In March 2008, the Government of India constituted a committee for
comprehensive review of Employees' Pension Scheme 1995, giving it the mandate to look
into all possible ways and means to meet the demands of the members/beneficiaries
while ensuring the long term viability of the Scheme. Subsequent to the recommendations
of this committee, the Government of India constituted an Expert Committee on
Employees’ Pension Scheme'1995 on 12.06.2009, under the Chairmanship of Shri S.
Krishnan, the then Special Secretary, Ministry of Labour & Employment, Government of
India.

1.2 Subsequent to the transfer of Shri S. Krishnan, the Ministry appointed Shri S.K.
Srivastava, Additional Secretary, Ministry of Labour & Employment, as the Chairman of
the Committee with effect from 26.11.2009. The constitution of this Committee is given
on the cover page of the Report. The Committee held three meetings – on 01.12.2009, on
02.02.2010 and on 23.07.2010. The minutes of these meetings are at Appendix1,
Appendix2 and Appendix3 respectively. In between these meetings, the discussion
among the members continued through e‐mails.

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CHAPTER 2

BACKGROUND OF EMPLOYEES' PENSION SCHEME 1995

2.1 The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 provided
social security benefits to the employees through Employees’ Provident Fund Scheme,
1952 by creating a Provident Fund to which both the employers and the employees
contribute a percentage of the wages of the employees in equal share. However, this
scheme was not found adequate to meet the social security needs of the employees and
there was demand for the introduction of a Pension Scheme. Accordingly on 1st March,
1971 a Scheme to provide pension to the family of the employee who died in service was
introduced called the Family Pension Scheme, 1971. The important provisions of Family
Pension Scheme, 1971 were as follows:

2.2 BENEFITS UNDER THE PROVISIONS OF FAMILY PENSION SCHEME, 1971, THE
FOLLOWING BENEFITS WERE PROVIDED TO THE MEMBERS AND THEIR
FAMILIES.

1 Life‐long pension to spouse upon death of the member while in service.
2 Pension to one child (eldest) up to age 25 (or marriage, if earlier, in case of
female child) upon death/re‐marriage of the spouse pensioner.
3 Life Assurance benefit of Rs 5000/‐ to the widow/widower/nominee upon
death of the member, provided that the contributions to the Pension Fund
were received for a period of at least 3 months.
4 Return of employee share of contribution (with interest) to the family upon
death of the member before putting in 3 months of service.
5 Return of employee share of contribution (with interest) to the member upon
cessation of membership before putting in 1 year of service.
6 Retirement‐cum‐Withdrawal benefit to the member upon cessation of
membership after putting in at least 1 year of service.

2.3 The benefits under the Family Pension Scheme were reviewed periodically and by
1995 minimum monthly pension was Rs 250/‐ for the lowest salary slab (up to Rs 300/‐)
and the maximum was Rs 1050/‐ for the highest salary slab (exceeding Rs 2500/‐).
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2.4 Quantum of Retirement‐cum‐Withdrawal benefit was as per the rates in the table
provided in the Schedule of Employees’ Family Pension Scheme 1971, which provided for
a minimum of 0.2 times the wage at cessation for 1 year of contributory service and a
maximum of 12.08 times the wage at cessation for 40 years of contributory service.

2.5 FUNDING:

2.5.1 The Scheme was funded by contributions made from three sources viz the
employee, the employer and the Central Government.

2.5.2 Each contributed 1.16% of the wage of employee every month. Thus, a total of
3.48% of the member’s wage was contributed every month towards the Family Pension
Fund.

2.5.3 The Employee’s and the Employer’s contributions came by way of diversion from
PF contribution. In other words, out of the contributions made by the Employee and the
Employer towards the PF account of the member 1.16% of wages was diverted to the
Family Pension Fund. The Central Government’s contribution i.e. 1.16% came directly to
and solely for the Family Pension Fund. The Central Government in addition met the
entire cost of administration of the Family Pension Scheme.

2.5.4 However, the wage upon which 1.16% was to be calculated was restricted due to a
statutory limit on wages on which contributions could be made. The wage limit was
revised from time and the details are in Appendix4.

2.6 TRANSITION TO A NEW SCHEME:

2.6.1 Soon after its launch in 1971, demands were raised that the old age security
benefit should also be provided to the member. In other words, pension to the member
upon retirement/superannuation, and in case of contingencies like disability was being
demanded. The Government acceded to these demands by notifying a new Scheme with
effect from 16.11.1995, called the Employees' Pension Scheme, 1995 replacing the
erstwhile Family Pension Scheme, 1971 and the net assets of the Family Pension Scheme
1971 were transferred to Employees’ Pension Fund.
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CHAPTER 3

FEATURES OF THE EMPLOYEES' PENSION SCHEME 1995

3.1 Employees' Pension Scheme, 1995 not only provides improved benefits to the
families; it also provides pension and other benefits to the member.

3.2 This scheme provides comprehensive benefits for members and within the
constraints of a funded scheme is providing for various contingencies.

3.3 BENEFITS UNDER THE PROVISIONS OF EMPLOYEES’ PENSION SCHEME, 1995,
TO THE MEMBERS AND THEIR FAMILIES.

i. Member Pension upon retirement /superannuation.
ii. Member Pension upon disablement while in service.
iii. Withdrawal Benefit upon leaving service after putting in less than 10 years but
more than six months of service.
iv. Spouse Pension upon death of member.
v. Spouse Pension upon death of member as pensioner.
vi. Children Pension along with spouse pension (up to age 25).
vii. Orphan Pension upon death or remarriage of spouse (up to age 25).
viii. Disabled Child Pension to children/orphan (life‐long).
ix. Nominee Pension to the Nominee when no family exists.
x. Dependent Parent Pension when no family and nominee exists.

3.4 BASIS FOR CALCULATION OF PENSION

3.4.1 The Pension to the member for service after 15.11.1995 is calculated by a simple
formula:‐
Pensionable Salary x Pensionable Service
70
where,

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Pensionable Salary = average salary on which contributions received/ receivable during
the last 12 months of service.

Pensionable Service = period of service during which contributions are received or
receivable

3.4.2 For service under Family Pension Scheme, 1971 i.e. prior to 16.11.95, past service
benefit is given which is added to the pension calculated as above to arrive at the total
pension.

3.5 FUNDING:

3.5.1 The Scheme is funded by contributions made from two sources viz. the employer
and the Central Government.

3.5.2 The Government’s contribution continued to be 1.16% of the member’s
monthly wage, Employees’ contribution of 1.16% made in Family Pension Scheme,
1971 was discontinued in Employees Pension Scheme, 1995 and, the Employer’s
contribution was increased from 1.16% in Family Pension Scheme 1971 to 8.33%
in Employees’ Pension Scheme,1995. Thus, a total of 9.49% of the member’s wage was
contributed every month towards the Employees’ Pension Fund.

3.5.3 In this Scheme also, the wage upon which 8.33% and 1.16% are to be calculated
were restricted due to a statutory limit on wages on which contributions could be made.
The wage limit was revised from time to time as per details in Appendix4.

3.6 IMPROVEMENT OVER FAMILY PENSION SCHEME'1971:

3.6.1 Several new benefits were provided to the members under Employees' Pension
Scheme, 1995. These are as follows:

1. Member Pension upon retirement/superannuation.
2. Member Pension upon disablement while in service.
3. Spouse Pension upon death of member as pensioner.
4. Children Pension along with spouse pension.
5. Orphan Pension upon death / remarriage of spouse (up to age 25).
6. Disabled Child Pension to children/orphan (life‐long).
7. Nominee Pension to the Nominee when no family exists.
8. Dependent Parent Pension when no family and nominee exists.
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CHAPTER 4

PERFORMANCE OF THE EMPLOYEES' PENSION SCHEME 1995
PERFORMANCE OF THE EMPLOYEES' PENSION SCHEME 1995

4.1 The Employees’ Pension Scheme, 1995 was framed with the objective of providing
regular old age income under the following assumptions:
1 The Pension Fund shall have adequate interest earnings so as to ensure reasonable
pension and other benefits to the members and their families.
2 Members would continue with their membership and continue to contribute to the
scheme so as to avail most of the retirement/ superannuation benefits in the form
of regular income rather than availing premature benefits.
3 The statutory wage limit would only be increased with prior actuarial analysis
since it was a defined benefit Scheme and the wage limit may increase the deficit
in the EPS, 95. Similarly, any change in the benefits provided under the Scheme
would only be made after making a proper actuarial analysis. under para‐32 of
Employees’ Pension Scheme,1995 following the annual actuarial valuation, so as to
keep the scheme viable.

4.2 However, the actual experience with the Scheme has been as follows:

1 The interest rate regime has fallen consistently from around 12% pa in 1996 to
less than 8% pa in 2006. Interest Earnings Analysis as per the data in Valuation
Reports is shown in Appendix5. This has had an adverse impact on the earnings
and consequently the monthly pension amounts. This has also resulted in high
actuarial deficits basically because of the wide spread of benefits.

2 Members do not continue for long in the Scheme and like to withdraw their money
whenever they are changing jobs before putting in ten years of service. There has
been an unusually high incidence of early withdrawal payments. Similarly, the
number of early pension optees is far more than those opting for superannuation
pension. Analysis of Outgoing Payments is shown in Appendix6. From the same
it is seen that the premature withdrawals are as high as 34.4% of the payments.

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3 The statutory wage limit was increased in 2001 from Rs 5000 to Rs 6500 without
being backed up by an actuarial advice. This injected an instant actuarial deficit to
the tune of Rs 10,000 crore in the EPS’95 Fund as no provision was made to obtain
the contributions on the enhanced salary for the earlier period of service already
put in on which the benefits would eventually be paid at the time of
superannuation. This can be explained with the help of an illustration as follows:

Illustration: Suppose a member, drawing a basic wage of Rs 6500 per month in
1996, was contributing to Pension Fund @ Rs 5000 per month due to the statutory
wage ceiling of Rs 5000 at that time.

In 2001, the wage ceiling was increased to Rs 6500 and the member starts
contributing to Pension Fund @ Rs 6500 per month. At the time of
superannuation, he becomes entitled for pension with pensionable salary of Rs
6500 and the resultant calculations thereto. Thus, whereas he contributed @ Rs
5000 for a certain period of pensionable service, he became entitled for pension at
a pensionable salary of Rs 6500. This anomaly needs to be accounted for by
breaking the benefit in two parts – one for the period when the pensionable salary
was Rs 5000 and the other when it was Rs 6500 and the same should have been
factored in.

Salary rise is normal in the career life span of an individual and the same is also
taken into account during actuarial calculations. However, before effecting an
amendment in wage ceiling, it should be backed by infusion of additional funds by
way of additional contributions or modification in benefits calculation as may be
actuarially found feasible.

4 The provision of voluntary contribution beyond the statutory wage ceiling with
the mutual consent of the employee and the employer was introduced in 1996
without compensating for Government contribution which remains fixed at 1.16%
upto wage ceiling only. This is also a cause of increasing deficit whenever such
option is granted/exercised. This has also introduced an about marginal element
of cross‐subsidization from lower income to higher income group.

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5 Several amendments liberalising the benefits under EPS'95 were made after the
launch of the Scheme in 1995. Dependent Parent Pension was introduced in
March’1999; Pension to disabled children/orphans for life was introduced in
March’1999; The rates of minimum pension in respect of widow / children/
orphan pension were increased in January’2000.

6 Each Annual Valuation Report had called for immediate corrective steps such as:
i Improvement in quantity and quality of data
ii Increase in contributions to match the decreasing rate of returns
iii Disincentive for early withdrawal
iv Alteration in the scale of several benefits

However, necessary steps were not initiated to implement the above
modifications. Some measures to check the large deficit were taken at a late stage
in the year 2008.

7 The Pension Fund was in actuarial surplus during the first four years, ie from
1996‐2000. Hence, reliefs were declared to the eligible pensioners as follows:

Valuation Number Date of Recommended rate of

Valuation relief on original pension
1st Actuarial Valuation 15/11/1996 4%
2nd Actuarial Valuation 31/03/1998 5.5%
3rd Actuarial Valuation 31/03/1999 4%
4th Actuarial Valuation 31/03/2000 4%
Thus, a pensioner of 1996, continuing in 2000, got an increase of 17.5% on
his/her original pension.

After 2000, the Pension Fund came in actuarial deficit because of which no further
relief could be announced by the Government.

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4.3 CAUSES OF ACTUARIAL DEFICIT

4.3.1 The following can be broadly categorized as the causes of actuarial deficit:
1. Mismatch in expected rate of investment return.
2. Mismatch in expected pattern of exit from the Scheme.
3. Amendments in the Scheme without being backed up by actuarial advice.
4. Delay in taking remedial action.

4.4 In view of the above factors, the Employees Pension Scheme,1995 Fund came into
actuarial deficit in the year 2000‐01 and the deficit since then has continuously increased
as shown below in the tabular as well as graphical form:

Valuation Period of Valuation Surplus/ Deficit (in Rs Cr)
1st 16.11.1995 to 15.11.1996 +1689
2nd 16.11.1996 to 31.03.1998 +1239
3rd 01.04.1998 to 31.03.1999 +732
4th 01.04.1999 to 31.03.2000 +70
5th 01.04.2000 to 31.03.2001 ‐ 43
6th 01.04.2001 to 31.03.2002 ‐17,136
7th 01.04.2002 to 31.03.2003 ‐19,291
8th 01.04.2003 to 31.03.2004 ‐22,021
9th‐10th 01.04.2004 to 31.03.2006 ‐22,659

(combined)

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The graphical depiction of the above table is as follows:

4.5 In order to address the above causes of deficit, the major recommendations of the
Actuarial Valuation Reports are as follows:
1. Increase in the rate of contribution from 8.33% to 11.75%.
2. Need to take requisite measures in case of future increase in wage ceiling.
3. Increase the age of vesting from 58 to 60 years.
4. Revision of Table ‘B’ & ‘D’ (withdrawal benefit).
5. Increase in the reduction rate from 3% to 5% in early pension cases.
6. Discontinuing the option of Commutation.
7. Discontinuing the option of Return of Capital
8. Liberalising the pattern of Investment with a view to achieve higher returns.

4.6 Of these recommendations, those at S.No. 4 to 7 have already been implemented
with certain modifications. As a result, the deficit in the last Valuation (9th & 10th) has
remained at almost the same level as that of 8th Valuation. Here, still the cause of concern
is that the deficit has only been arrested but has not declined. The recommendations at
S.No. 1 to 3 have been considered in this Report. As regards the recommendation at
S.No.8, the issue is a continuing process and the matter needs to be addressed by the
Central Board of Trustees.
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CHAPTER 5

CHALLENGES THROWN BY THE EXPERIENCE OF

5.1 At present the three basic challenges for Employees’ Pension Scheme, 1995 are as
follows:
1 Static pension, i.e. pension not linked to inflation.
2 Statutory ceiling of Rs. 6500/‐ per month on contributory wage.
3 The continuing actuarial deficit given the present set of benefits.

5.2 The amounts of benefit envisaged at the time of introduction of Employees’
Pension Scheme, 1995 have decreased in real terms with each passing year due to the
effects of inflation. Non‐indexation of these benefits to inflation has resulted in decrease
in real pension. Moreover, the wage ceiling on wage of Rs. 6500/‐ per month upon which
the contributions can be made are not in tune with rising wage levels. Hence, the
quantum of pension benefit being received by the pensioners is becoming increasingly
insufficient to cater to the daily needs of the pensioners. On the other hand, given the
existing rate of contribution and the benefits defined in the scheme, the actuarial deficit
is continuously increasing with every successive valuation.

5.3 In addition to the major challenges stated above, there are number of demands
from the members and pensioners directly related to Employees’ Pension Scheme, 1995
as well as other peripheral demands. The Parliamentary Standing Committee on Labour
on the EPFO – Employees’ Pension Scheme, 1995 has also given recommendations on
such demands. These demands/recommendations are listed as below:

i. Provision for minimum pension.
ii. Restoration of provisions of Commutation and Return of Capital.
iii. Declaration of pension relief regularly as was done after the first four
valuations
iv. Increase in rate of contribution of employer and Govt. towards EPS’95
v. Grant of Pension before attaining the age of 50 years
vi. DA to pensioners linked with price index
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vii. Increase in wage ceiling.
viii. Raising the superannuation age from 58 to 60 years
ix. Pension at par with Central Government.
x. Other miscellaneous demands such as providing membership option to those
retiring before 01.04.1993; granting a lump‐sum upon death of the
pensioner; providing unused agricultural land free to pensioners, not owning
houses, by the Central/State Government, free medical assistance to EPF
Pensioners etc..

5.4 The Committee, during the course of its discussions in the meetings, has carefully
considered all these issues and their effect on the Employees’ Pension Fund especially in
view of the actuarial inputs provided by the Actuary and have made its recommendations
accordingly.
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CHAPTER 6

WORKING OF THE EXPERT COMMITTEE
6.1 The Expert Committee on Employees’ Pension Scheme, 1995 held three meetings.
The first on the 1st December 2009, the second on the 2nd February 2010 and the third on
the 23rd July 2010.

6.2 Initially, the Committee examined the status of the Employees’ Pension Scheme,
1995 keeping in view the Fund position and deliberated on various suggestions and
recommendations received so as to arrive at viable and feasible alternative solutions by
modifying the provisions of the existing Scheme. In the second meeting, the Committee
approved many proposed amendments in Employees’ Pension Scheme, 1995. The
proposal that the member should be given the option to authorize the employer to divert
1.16% extra from employer’s contribution so that the total contribution remains 9.49% in
case of voluntary contribution over the wage ceiling was approved by the Committee.
Proposals to increase the pensionable age from 58 to 60 years, to disallow the option of
early pension, to discontinue the provisions of Nominee Pension outside family, to raise
the early pension vesting age from 50 to 55 years , merger of Employees’ Deposit Linked
Insurance Scheme, 1976 in Employees’ Pension Scheme, 1995, to conduct valuation of
the Pension Fund once in three years instead of every year and to pay interest to the
member for delayed payment of pension were also approved by the Committee. The
Committee also approved that the expected financial impact of these proposals shall be
obtained from the Actuary before arriving at the final recommendations.

6.3 The Committee noted that other proposals relating to hike in wage ceiling,
increase in minimum pension, increasing the rate of contribution under the Employees’
Pension Scheme, 1995 and possibility of providing for an annual hike need to be
actuarially evaluated to know the expected financial impact thereof.

6.4 The discussions between the members of the expert Committee continued via e‐
mail. Meanwhile, the Committee was also provided with the Actuarial impact of the
various proposals approved/ considered by the Actuary M/s K.A. Pandit. As the
Committee discussed the various pros and cons of the demands, suggestions and
16
expectations of various stakeholders it became increasingly clear that though the scheme
can be made sustainable by rationalizing the existing benefits and/or scale of benefits, it
may not be possible to rationalize the benefits once for all and therefore in future, there
may again be a need for further amendments/modifications. The committee also noted
that the higher benefits being demanded can not be given without increasing the rate of
contribution and even with the increase in contribution, the benefits can not be sustained
on a firm basis.

6.5 The financial impact of the various alternatives made it clear that increase in
minimum pension is feasible only for future pensioners as increasing the pension of the
existing pensioners enhances the financial burden manifold. The committee also found
from the actuarial inputs that the increase in wage ceiling was possible only if pension is
calculated separately for pensionable service and salary prior to increase in wage ceiling
and post increase in wage ceiling.

6.6 The in‐depth analysis of the actuarial inputs led the Committee to examine that
along with arriving at feasible amendments in the existing Employees’ Pension Scheme,
1995, the Committee must also attempt to find a totally new alternative solution to the
existing Scheme because even though the Pension Fund is running into actuarial deficit as
the benefits under the scheme are more than what the fund can sustain, still the
beneficiaries are not satisfied with these benefits and have been demanding increase in
benefits. These discussions led to the conceptualization of a new alternative i.e.
replacement of the Employees’ Pension Scheme, 1995 with a Provident Fund‐cum‐
Pension Annuity Scheme. The committee noted that having a Defined Contribution
Scheme with an element of insurance would lead to more equity and transparency in
benefit accumulation and distribution.

6.7 In the final meeting of the Committee, the draft report was discussed in detail and
after deliberations it was decided that two final recommendations might be made. The
Committee felt that the best solution should be to replace the existing Employees’
Pension Scheme, 1995 with the proposed Provident Fund‐cum‐Pension Annuity Scheme.
However, it was agreed that in case the Central Board of Trustees does not favour the said
recommendations as an alternative, a benefit package modifying the existing Employees’
Pension Scheme, 1995 by increasing the rate of contribution and without changing the
17
basic structure of the Scheme, should also be recommended. It was also agreed that the
Committee would also point out the need for collecting adequate number of data so that
the sample for any valuation of the Employees’ Pension Fund be adequate. It was also
decided that if the existing Employees’ Pension Scheme, 1995 is continued the actuarial
valuation of the Employees’ Pension Fund may be conducted after every three years and
immediate remedial measures be initiated.
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CHAPTER 7

THE POSSIBLE ALTERNATIVE SCENARIOS:EXISTING SCHEME

7.1 During discussions as already pointed out in previous Chapter, the Expert
Committee decided to assess the actuarial impact of several possible amendments in
Employees’ Pension Scheme, 1995 to have a clear and definite implication of the
various suggestions being considered by the Committee and to make informed
recommendations on a sound analytical basis. The task of carrying out the actuarial
effect of the suggestions under consideration was given to the M/s. K.A. Pandit
Consultants & Actuaries. The Actuary submitted his report on 08.07.2010, based on the
prevailing range of discount factors of 8% and 7.5%. The summary of the detailed
suggestions along with actuarial impact is placed at Appendix 7 with an average interest
rate of 8% and at Appendix 8 with an average interest rate of 7.5%.

7.2 The wage ceiling limit presently is Rs 6500 per month. However, considering the
present wage trends and also the fact that wage ceiling was last revised w.e.f 01.06.2001,
the Committee was of the clear and firm opinion that in any recommendation, the wage
ceiling needs to be revised upwards. Hence, the Committee taking note of the fact that
ESIC has recently adopted a wage ceiling of Rs 15,000/‐, it decided to analyze the
various scenarios keeping the statutory wage ceiling in two alternatives i.e. Rs. 10,000
and Rs 15,000 per month. In order that there is a wider scope for decision making on the
basis of the Actuarial analysis, six scenarios have been worked out for a wage ceiling of Rs
10,000 and Rs. 15,000 per month. It was noted by the Committee that any such
enhancement in wage ceiling limit shall have to be done prospectively and the ultimate
benefit shall be paid in two parts – one accruing due to contributions made prior to wage
ceiling enhancement and the other accruing due to contributions after such enhancement.
Such an approach is necessary to ensure the long term sustainability of the Scheme.

7.3 It is seen that the only way the Scheme can provide for increased wage ceiling and
other benefits as analyzed in the scenarios is through increased contribution rates. The
Committee during discussions in the first meeting came to the conclusion that increased
19
contribution rates may range from 11.49% to 18.33% which can be provided for as
follows:

Employer Government Employee Total
10.33 1.16 0 11.49
10.33 2.5 0 12.83
10.33 2.5 2 14.83
12.00 2 2 16.00
12.00 4 2 18.00

However, subsequently in the third meeting, another set of contribution rate was
worked out as explained in Scenario 6. For the first five scenarios, the analysis has
therefore been worked out on the basis of the above table. The exact rates that have
been found feasible based on facts and actuarial inputs are mentioned in the
following pages under each scenario and options considered and recommended by
the Committee.

7.4 On the basis of analysis of the projections provided by the Actuary and discussions
held by the Committee, the following six different scenarios with wage ceiling of Rs
15,000/‐ pm and for wage ceiling of Rs 10,000/‐ pm; with a discounted rate of 8% have
been considered for recommendations:‐

Scenario 1: Sustaining the Scheme by continuing with the present rate of
contribution, i.e. 9.49%, through rationalization of present benefits.
Option 1: for Wage ceiling of Rs 15,000/‐ pm
Option 2: for Wage ceiling of Rs 10,000/‐ pm.

Scenario 2: Sustaining the Scheme by continuing with the present benefits, but with
increased rate of contribution.

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Scenario 3: Sustaining the Scheme by restoring benefits withdrawn under three
amendments of 2008, by increasing the rate of contribution.

Scenario 4: Sustaining the Scheme by providing for minimum pension Rs. 1000 for
future pensioners.

Scenario 5: Sustaining the Scheme by providing for minimum hike of 3% p.a.

Scenario 6: The scenario worked out in the 3rd and final meeting of the Expert
Committee on the basis of wage ceiling of Rs. 10,000/.

Detailed analysis of the Six scenarios: These scenarios are discussed in detail in the
following pages.

It may be noted that the scenarios have been worked out based upon a small sample of
members. The relevant extracts from the Actuary’s Report is given below:

“The total membership of the EPS, 95 Scheme as on the valuation date is
44,547,765. On a thorough scrutiny, the information about 2,439,558 members
was found consistent and complete. Based on this sample, after a careful study of
the exits on various counts from the Employees’ Pension Scheme, 1995 and
Employees’ Provident Fund Schemes, a projection was made to arrive at the
estimate of information of all members in respect of age, salary and duration since
entry. The valuation was made on the basis of this projection.”

“…….on a careful analysis of this data a projection was made about the likely
distribution of the total membership of the Scheme age wise along with duration
since entry and salary……...” .
21

For a scheme covering establishment having diverse employees age profile, diverse salary
structure and diverse duration of service, any projection of the total population on the
basis of 5.48% data and that to not a representative sample data, would have its own
limitation and need recognition in decision‐making.

It is agreed that in a Pension Scheme covering 44,547,765 members, data maintenance is
a huge task and there would always be some deficiencies in the data. However, these
deficiencies are of enormous proportions in the case of Employees’ Pension Scheme, 1995
and the authorities need to address this issue on priority basis if the scheme is to be
continued in its present form of defined benefits or else there will always be a lurking
uncertainty about its long term sustainability.

22
SCENARIO 1
1

TO SUSTAIN THE SCHEME WITH THE
PRESENT RATE OF CONTRIBUTION

Option 1: with Wage ceiling of Rs 15,000

1 In order to retain the total contribution at the present rate of 9.49% and to wipe
out the actuarial deficit of Rs 69,834 cr (as on 31.03.2009) as indicated at page 70
at Appendix‐7, the following five modifications in Employees’ Pension Scheme,
1995 will have to be effected:
1) Pensionable Salary should be the average of last 3 years instead of 1 year as at
present
2) Withdrawal Option, i.e. exit from the Scheme by taking a lump‐sum before
rendering 10 years of service should be deleted.
3) Bonus of 2 yrs upon 20 years of service (at superannuation) should be
discontinued..
4) Superannuation age should be from 58 to 60 years.
5) Early Pension before age 55 years should not be allowed.

2 Based on the projections provided by the Actuary, the Committee has been able to
find that with the above modifications, it would also be possible to provide a
Minimum Pension of Rs 1000/‐ per month to all types of future pensioners, as may
be seen in the Table below:
All figures are in Rs crore
Base Deficit ‐69,834
Saving due to Pensionable Salary of 3 years 8,774
Saving due to deletion of Withdrawal Option 6,776
Saving by disallowing bonus of 2 years 20,178
Saving due to raising of age of Superannuation to 60 years 27,076
Saving due to raising the age for Early Pension 12,028
Addition Burden for providing Minimum Pension of 1000/‐ ‐3012 (14042)*
Net Surplus 1,986 (‐9044)*

23
* The Committee also finds that if the benefit of minimum pension is to be extended to
the existing pensioners, the surplus of Rs. 1986 crore shown in the above table would
turn into deficit of Rs. 9044 crores because the additional burden for providing minimum
pension of Rs. 1000/‐ would be of the order of Rs. 14042 crores in lieu of Rs. 3012 crores.

In order to retain the present contribution rate of 9.49% and to wipe out the actuarial
deficit of Rs 27,040 crore (as on 31.03.2009) at Appendix ‐ 7, the following two
modifications in Employees’ Pension Scheme, 1995 will have to be effected:
1. Withdrawal Option, i.e. exit from the Scheme before rendering 10 years of service
should be deleted.
2. Superannuation age should be raised from 58 to 60 years.

This would leave the fund with a surplus of Rs 2,770 crore, as per the projections
provided by the Actuary. The detailed calculations are shown in the Table below:
(All figures are in Rs crore)
Saving due to raising of age of Superannuation to 60 years 23,363
Net Surplus 2,770

It is seen that the net surplus is just marginal.
24
SCENARIO 2

TO SUSTAIN THE SCHEME WITHOUT ALTERING
THE CURRENT BENEFITS


In order to continue with the present structure of benefits, the Total Contribution to EPS
Fund would have to be raised to 11.75% (i.e. 2.26% extra). It would leave the Fund with an
estimated actuarial surplus of Rs 1,782 crore This has been worked out on the basis of
projections provided by the Actuary, as shown in the Table below:
Funds generated by raising the contribution to 11.75% 71,616
(i.e., due to 2.26% extra contribution)
Net Surplus 1,782

The break up of the contribution rate of 11.75% be as follows:
Employer = 10.59 %
Government = 1.16% (Existing)
Employee = 0%


In order to continue with the present structure of benefits, the total contribution to EPS
Fund would have to be raised to 10.49% (i.e. 1% extra). It would still leave the Fund with
an estimated actuarial surplus of Rs 620 crore, This has been worked out on the basis of the
projections provided by the Actuary, as shown in the Table below:
Funds generated by raising the contribution to 10.49% 27,660
(i.e., due to 1% extra contribution)
Net Surplus 620

The break up 10.49% contribution rate be as follows:

Employer = 9.33 %
Employee = 0%
25
SCENARIO 3

TO SUSTAIN THE SCHEME IF THE BENEFITS WITHDRAWN UNDER THE
AMENDMENTS OF 2008 ARE TO BE RESTORED


The Government of India, vide its Notification No. 688(E) dated 26.09.2008 had made the
following amendments in Employees’ Pension Scheme, 1995 with a view to reduce the
continuing large deficit in the Scheme:
1 The factor of reduction for Early Pension was increased from 3% to 4%.
2 Option for Return of Capital was removed.
3 Option for Commutation was removed.

In order to restore the benefits withdrawn under the above amendments and retain the
present benefits, the Total Contribution to EPS Fund would need to be raised to 17%. It
would leave the Fund with an estimated actuarial surplus of Rs 2,228 crore. This has been
worked out on the basis of the projections provided by the Actuary, as shown in the Table
below:
Corpus generation by raising the contribution to 17% 2,37,981
(i.e. due to 7.51% extra contribution)
Cost of restoring the Reduction Factor & Option of ‐17,399
Commutation
Cost of restoring the Option of Return of Capital ‐1,48,520
Net Surplus 2,228

The breakup of 17.00% contribution rate can be as follows:
Employer = 12 %
Government = 2.5%
Employee = 2.5%

26


For retention of the present benefits along with the restoration of the benefits withdrawn
under above three amendments, the Total Contribution to EPS Fund would need to be
raised to 14.83%. This rate of contribution would also enable the Fund to provide a
Minimum Pension of Rs 1000/‐ pm to all types of future pensioners. This has been worked
out on the basis of the projections provided by the Actuary as shown in the Table below:
Corpus generation by raising the contribution to 14.83% 1,47,707
Cost of restoring the Reduction Factor & Option of ‐14,033
Commutation
Cost of restoring the Option of Return of Capital ‐99,223
Cost of providing the Minimum Pension of Rs 1000/‐ pm ‐3,012
Net Surplus 4,399

The break up of the contribution rate of 14.83% is provided in the table at para 7.3.

27
SCENARIO 4
4

TO SUSTAIN THE SCHEME IF THE PROVISION OF MINIMUM PENSION OF
RS. 1000 IS MADE FOR FUTURE PENSIONERS


For providing minimum pension of Rs 1000/ per month to all types of future
pensioners : Presently, the Widow, Children & Orphan pensioners are entitled to a
minimum pension of Rs 450 Rs 250 and Rs 150 pm respectively. In order to raise all these
minimum pensions to Rs 1000/‐ p.m.

The total contribution would have to be raised to 12%. This leaves a marginal
surplus of Rs 6692 crore. This has been worked out on the basis of the projections provided
by the Actuary, as shown in the Table below:(All figures are in Rs crore)

Corpus generated by raising the contribution to 12% 79,538
Cost of providing the Minimum Pension ‐3,012
Net Surplus 6,692

The breakup of the contribution rate of 12% be as follows:
Employer = 10.84 %
Employee = 0%

28

The total rate of contribution with a wage limit of Rs. 10,000 would need to be
increased to 10.75%. This leaves a marginal surplus of Rs 4800 crore. This has
been worked out on the basis of the projections provided by the Actuary, as shown in
the Table below:

Corpus generated by raising the contribution to 10.75% 34,852
Cost of providing the Minimum Pension ‐3,012
Net Surplus 4,800

Employer = 9.59 %
Employee = 0%

29
SCENARIO 5
5

SUSTAINING THE SCHEME BY PROVIDING FOR
MINIMUM HIKE OF 3% P.A.


For providing a pension hike of 3% per annum (compounded) to all types of future
pensioners: The Committee considered the demand of increasing the pension each year
on the basis of cost of price index and found that instead of providing an index‐based
increase every year, an annual hike of 3% would be more practical as per the following
details:

In this case, it would be possible to provide both the above benefit if, along with
the five amendments specified in Scenario 1, the total rate of contribution is increased to
16.75%. This has been worked out on the basis of the projections provided by the Actuary,
as shown in the Table below:
Corpus generated by raising the contribution to 16.75% 2,30,059
Saving due to Pensionable Salary of 3 years 8,774
Saving by disallowing bonus of 2 years 20,178
Saving due to raising of age of Superannuation from 58 to 60 27,076
years
Saving due to raising the age for Early Pension 12,028
Cost of providing 3% annual hike ‐2,27,616
Cost of providing Minimum Pension of 1000/‐ ‐3,012
Net Surplus 4,429

Employer = 12 %
Government = 2.5%
Employee = 2.25%
30


In this case i.e. with wage ceiling of Rs. 10,000, only the total rate of contribution
will need to be maintained at 16.75% and the five amendments specified in
Scenario 1 can be avoided . This has been worked out on the basis of the projections
provided by the Actuary, as shown in the Table below:

Corpus generated by raising the contribution to 16.75% 2,00,815
Cost of providing 3% annual hike ‐1,73,688
Net Surplus 87

31
SCENARIO 6
6

THE SCENARIO WORKED OUT IN THE 3RD MEETING OF
THE EXPERT COMMITTEE ON THE BASIS OF
WAGE CEILING OF RS. 10,000/.

This scenario contemplates a package of benefits as follows :

• increase in wage ceiling from Rs. 6500/- to Rs 10,000/- .

• provision of annual relief of 3% ; and
• a minimum Pension of Rs. 1000/- to all categories of pensioners.
Providing these higher package of benefits necessitates increase in rate of contribution which
may go upto 18-20%. As this much higher contribution rate is not feasible, the following six
modifications would also need to be implemented.

• Pensionable Salary to be calculated as an average of last 3 years of service.

• Withdrawal option to be deleted
• Bonus of 2 years to be disallowed
• The age of superannuation to be raised from 58 to 60 years; and
• The age for early pension to be raised from
from 50 to 55 years
• Nominee Pension to be disallowed.

With the above modifications, the rate of contribution would come down to 14.75% from
18‐20%. The required rate of contribution in the pension fund shall be met as follows:

S.No. Establishment Diversion Government Diversion Total
contributing @ from contribution from contribution
Employer Employee
contribution contribution
1. 12% 12% 2.75% Nil 14.75%

2. 10% 10% 2.75% 2% 14.75%

32

Present Values Rs. in Crores Rs. in Crores
Base shortfall 27,040

a. Provision of annual relief of 3% 1,73,688
b. A minimum Pension of Rs. 1000/‐ to all 3,012
categories of pensioners 1,76,700
Total Requirements 2,03,740
a. Saving due to Pensionable Salary of 3 years. 6,962
b. Saving due to deletion of Withdrawal 6,447
Option.
c. Saving by disallowing bonus of 2 years. 16,123
d. Saving due to raising of age of 23,363
Superannuation to 60 years.
e. Saving due to raising the age for Early 8,997
Pension.

Total Savings 61,892
Net Deficit 1,41,848
5.26% contribution 1,47,299
Surplus after additional contribution 5,451

33

CHAPTER 8

PROVIDENT FUNDCUMPENSION ANNUITY SCHEME –
AN ALTERNATIVE

8.1 The Committee initially attempted to address the challenges being faced by
Employees’ Pension Scheme, 1995 by arriving at possible amendments in the existing
Employees’ Pension Scheme, 1995. However, the Committee felt that a defined
contributory scheme with elements of insurance shall be more realistic, equitable,
sustainable and in line with the emerging trends in social security schemes world over.

8.2 This is a defined contribution scheme with a mix of appropriate insurance with the
following advantages:

8.2.1 This step would be in tune with similar developments in the country and across
the world.
8.2.2 It would ensure individual accounting of the members, thus addressing their long‐
standing demand of transparency in pension fund accounts and commensurate
benefits. The Committee felt that individual accounting will motivate an individual
member to retain funds in the Scheme till superannuation as the Scheme is not
being pooled together. It will also provide flexibility to the individual to decide on
an annuity amount by pooling in funds from the provident account also.
8.2.3 The insurance factor will cover the risk of death and disablement.
8.2.4 The Scheme will be transparent and easy to understand
8.2.5 The benefits will be easily portable.
8.2.6 It will also ensure long term sustainability on a firm basis. Thus it will provide a
sound platform for enlarging Scheme by reducing the threshold from 20
employees to 10 and also for increasing the wage ceiling from time to time.

34
8.3 The Committee therefore attempted a draft of a Provident Fund‐cum‐Pension
Annuity Scheme as follows:‐.

8.3.1 Two accounts shall be maintained in respect of each member: Provident Fund
Contribution Account (PFCA) and Annuity Contribution Account (ACA).

8.3.2 In order to ensure reasonable pension amount as also to increase the EDLI purpose
for larger benefit, the Committee felt that the overall contribution rate be increased
to 14% as per the following breakup :

S.No. Establishment Diversion Government Diversion from Total

contributing from contribution Employee contribution
@ Employer contribution
contribution
1. 12% 11.5% 2.0% Nil 13.5%
2. 10% 9.5% 2.0% 2% 13.5%
The remaining 0.5% of employer’s share shall be diverted into EDLI Fund.

8.3.3 There shall be a statutory salary limit for coverage under the scheme upon which
the contributions shall be calculated. To start with, this limit fixed at Rs 10,000/‐
per month.

8.3.4 The member and the employer shall be free to contribute at salary beyond the
statutory limit without the approval of EPFO. However, Government’s contribution
shall be limited to the statutory wage ceiling.

8.3.5 Withdrawals, disbursements and nomination under PFCA shall be largely
governed by the provisions similar to those under the present Employees’
Provident Fund Scheme, 1952. In other words, PFCA shall cater to the Provident
Fund benefit for the members under the Scheme.

8.3.6 The old age regular income benefit to the members shall be provided in the form
of annuity purchased through the accumulations in ACA. This shall be allowed only
at superannuation.

8.3.7 In case of death, the spouse of the member will be entitled to get accumulations in
PFCA and purchase annuity from the accumulations in ACA. In addition, the spouse
will also get a lump sum from EDLI for purchasing annuity.
35
8.3.8 In case of disability, the member will be entitled to get accumulations in PFCA and
purchase annuity from the accumulations in ACA. In addition, the member will get
the EDLI benefit and add it to the amount for purchasing annuity.

8.3.9 With diversion of 0.5% employer’s share into EDLI Fund, the accumulation
payable to spouse/member in case of death/disablement will increase. It is
expected that the benefit will atleast become Rs. 2,00,000. This can be verified by
conducting a valuation of EDLI Fund.

8.3.10 Default by the employer in ACA, if any, to be made good from EDLI Fund to the
extent possible. However, this would not absolve the employer of the statutory
obligation to submit the dues under ACA. As and when the amount is recovered,
the same shall be credited to the EDLI Fund with interest & damages received. This
will bolster the shock‐absorbing capacity of the EDLI Fund in case of contingencies
of death and disability.

8.3.11 Pensioners existing as on cut‐off date (say, 01.04.2011) or those eligible for
pension on or before the cut‐off date shall be compensated by providing a lump‐
sum commensurate with the age and amount of pension of the pensioner. On the
other hand, the existing members shall be compensated by providing the transfer
of accumulations as per Tables E, A & B, as applicable.

8.3.12 As and when the transfer of accumulation shall be done, there is a possibility of
some balance, positive or negative, remaining in the fund. Such fund can be
merged into the EDLI fund from where the insurance element of the scheme shall
be administered.

8.3.13 In case of exempted establishments, PFCA accounts shall be maintained by the
employer. Exempted establishments can also maintain ACA accounts, provided
they pay the Government’s contribution.

36
8.3.14 The provisions related to enrollment of members, allotment of account numbers,
deduction and payment of contributions and processing of interest under
PFCA/ACA shall remain same as those in the present EPF Scheme, 1952.

8.3.15 A sample calculation for various annuity scenarios as per Jeevan Akshay Policy of
LIC is as follows.

Value of monthly Annuity:

Age Accumula
Age at Wage at Period of Wage at tions in
Entry Entry Service at Exit Exit ACA A1 A2 A3 A4
20 3500 35 18387 55 2085270 15035 14138 11844 12262
20 3500 40 23467 60 3355981 26143 24163 21075 19901

A1 = Annuity payable for life at a uniform rate.
A2 = Annuity for life with a provision of 50% of the annuity payable to spouse during
his/her lifetime on death of the annuitant.
A3 = Annuity payable for life increasing at a simple rate of 3% p.a.
A4 = Annuity for life with return of purchase price on death of the annuitant.

This is only an illustrative table and the benefits are indicative.

Assumptions:
(i) Contribution Rate: 13.5%, Salary Escalation Rate per annum: 5%
(ii) Wage ceiling is increased regularly.
(iii) Interest Earning Rate during contributory period: 8.5%

8.3.16 The annuity at the time of superannuation/exit from the scheme would be
purchased from insurance providers as approved by Central Board of Trustees.

8.3.17 The Scheme is expected to address the various grievances as follows:
S.No. Grievance Redressal
1 No information to the member Due to individual accounting, complete
about his/her accumulations in account statement of the member in ACA
Pension Fund. shall be available.
2 Unrealistic statutory limit on Members and Employers shall be free to
salary on which contributions can decide their own limits of upper
be made. contributions without any approval from PF
authorities.
3 Static rates of pension. The member will have the option to choose
an increasing annuity.

37
8.4 After the second meeting of the Committee, the members have continuously
exchanged views and discussed the matter further through e‐mails. The comments of the
members on the above concept have been summarized in Appendix9.

8.5 For better appreciation of the concept a comparison of the proposed Provident
Fund‐ cum‐ Pension Annuity Scheme with the New Pension System of Government of
India (for non‐government employees) is given in Appendix10.
38
CHAPTER 9

SUMMARY OF FINAL RECOMMENDATIONS

9.1 The Committee has looked into the Employees’ Pension Scheme, 1995 and the
expert views have been explained in detail in the earlier chapters. After contemplating
the detailed analysis provided by the Valuer, the Committee has arrived at the conclusion
that the final two recommendations be made to the Government i.e.

Recommendation 1: Introduction of Provident Fund‐cum‐Pension Annuity Scheme; and

Recommendation 2: Modifications in the existing Employees’ Pension Scheme, 1995.

Recommendation 1: Introduction of Provident FundcumPension Annuity Scheme
ecommendation 1: Introduction of Provident FundcumPension Annuity Scheme

9.2 The Committee considered various ways out of the present imbroglio and felt that
the minimum pension level and the statutory wage limit being prescribed would again fall
short of pensioners’ expectations after some years as the real value of the benefits being
envisaged now would come down in future. This would again necessitate the increase in
contributions in future. However, periodic increase in contributions may not be
forthcoming regularly from the various stakeholders. Hence, such exercises would have
to be repeated in future to find new ways to meet the pensioners’ demands while
ensuring the sustainability of the Scheme.

9.3 The Committee feels that the proposed Provident Fund‐cum‐Annuity Scheme is a
better option to tide over the problems being faced by the Employees' Pension Scheme,
1995, as it has the base advantages as elaborated at para 8.2 of Chapter 8:

9.4 Hence the Committee, as the first option, would recommend the Provident Fund
cum Pension Annuity Scheme as elaborated at Chapter ‐8.

39

Recommendation 2: Modifications in the existing Employees’ Pension
Scheme, 1995

9.5 To continue with the existing Scheme framework, the Committee considered the
six Scenario as analysed in the earlier Chapters. The committee further noted that no
increase in wage ceiling is possible unless the pension benefits are calculated in parts
separately for pensionable service in respective wage ceilings as and when these are
changed.

9.6 Accordingly, after contemplating the six scenarios worked out in Chapter 7, the
Committee recommends that the sixth scenario may be adopted i.e. a package of benefits
consisting of :
• Increase in wage ceiling from Rs. 6500/- to Rs 10,000/- .

• provision of annual relief of 3% ; and
alongwith the following modifications to offset the cost of above benefits as much as possible:

• The age of superannuation to be raised to 60 years; and
• The age for early pension to be raised to 55 years

For the above package of benefits the contribution rate required shall be @ 14.75%.

9.7 However, the Committee would again like to emphasize that in order to
make the scheme sustainable on a long term basis, it shall be better to switch to a
defined contribution scheme as proposed in first recommendation i.e. Provident
FundcumPension Annuity Scheme.

40
9.8 Other Recommendations:

In addition, the Committee would also like to suggest that the quantity and quality
of data in respect of EPS members, pensioners and their family must be improved
significantly and data collection should be given priority. An adequate number of data
shall ensure that valuation of the pension fund reveals a true and correct picture and
shall reduce number of assumptions as far as possible.

9.9 The Committee also recommends that the actuarial valuation of the Fund may be
conducted after every 3 years rather than making it an annual exercise that is
burdensome and time consuming.

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐o‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐
41

42

APPENDIX 1
Minutes of the 1st meeting of the Expert Committee for review of
Employees’ Pension Scheme 1995.
Date : 01-12-2009
Venue : Mini-Committee Room, Ministry of Labour and

Employment, Shram Shakti Bhawan, New Delhi.
Time : 11.00 am.
The first meeting of the Expert Committee for review of Employees’ Pension
Scheme 1995 was held on 01-12-2009 in the Mini-Committee Room of the Ministry of Labour
& Employment, Shram Shakti Bhawan, New Delhi. The meeting was chaired by Shri S.K.
Srivastava, Addl. Secretary, Ministry of Labour & Employment, Government of India.
The following members were present in the meeting:
1. Shri Nirmal Ghosh, Organising Secretary/ INTUC Kolkata, Member.

2. Shri S.P. Subhedar, Retd. MD. LIC of India, Member.
3. Shri Rajesh Bansal, Addl. CPFC, Member Secretary.
The following members could not attend the meeting:
1. Shri K. Chandramauli, CPFC

2. Joint Secretary (Social Security), Ministry of Labour & Employment
3. Shri Nalin Thakor, member
4. Shri Bhudev Chatterjee, Member
5. Dr. R. Kannan, Member
6. Shri J.P. Chowdhary, Member
7. Shri K.C. Mishra, Member
Following officers from Ministry of Labour & Employment and Employees’ Provident Fund
Organization were also present:-
1. Shri S.D. Xavier, Under Secretary, Ministry of Labour & Employment.

2. Shri P.U. Kulkarni, RPFC-I (Pension)
3. Shri Vikram Angurala, RPFC-II (Pension)
4. Shri Vineet Gupta, RPFC-II (Actuarial)
43
2. The Chairman welcomed the members of the Committee and requested the officers to
introduce themselves to the committee members. He appreciated the background papers
circulated for the meeting and requested the members to tender their expert views on the
problems being faced by the EPS.
3. The Chairman said that the benefits under EPS did not match up to the level of
prevailing Consumer Price Index and yet the Actuarial Deficit was constantly increasing. He
called for practical measures within reasonable boundaries to address the various problems
being faced under EPS, 1995.
4. Shri S.P. Subhedar said that the two advantages of EPS from the point of view of
financial viability were that the pension was not index linked & that the past service prior to
16-11-1995 was not a strain upon the scheme.
5. Shri Subhedar also said that the responsibility for Acturial Deficit should be fixed –
whether it was low rate of contribution or the generous nature of benefits or the low rate of
returns that was causing the deficit. He suggested that a roadmap for the adjustment of
contributions and benefits could be laid down.
6. The Chairman said that our basic concern should be to make EPS self sustainable and
one of the measures was through rationalization of benefits. He suggested that the portfolio of
benefits could be rationalized in such a manner that the benefits are viable. At the same time,
he stressed the need to increase the corpus of the Fund. He also observed that the rate of return
being generated by the investment of Pension Fund was satisfactory.
7. Shri Nirmal Ghosh agreed with the need to curb the Actuarial Deficit. He suggested that
the benefits should not be rationalized further. Instead, the Central Govt. should raise its
contribution. He asked that if Govt. could give fifty thousand crores for NREGA, why could it
not support EPS by a few thousand crores? He said that India being a socialist state, a
minimum pension according to Govt. standards should be fixed to provide a life support to the
husband and wife. He cited the example of international standards in this regard. Reacting to
44
this the Chairman said that most of the pension schemes in Europe were under severe financial
stress.
8. Shri S.P. Subhedar said that the maximum of 50% pension in government comes from a
contribution rate of around 22%. Hence, a contribution rate of mere 9.49% can’t meet the
expectations of bringing the pension under EPS at par with Govt. rates.
9. After listening to various other observations and in consultation with the members, the
Chairman directed that the surplus or deficit under following scenarios should be worked out
by the Consultant Actuary of EPFO for further consideration by the expert members of the
Committee:-
Scene EMPLOYER EMPLOYEE GOVERNMENT Total
(%) (%) (%) (%)
1 10.33 - 1.16 11.49

2 10.33 - 2.5 12.83
3 10.33 2 2.5 14.83
4 12.33 2 4 18.33
10. Shri S.P. Subhedar suggested that the following additional scenarios should also be
worked out simultaneously:
(a) Scrapping the provision of granting 2 years weightage to those whose

pensionable service is more than 20 years.
(b) Increasing the vesting age from 58 to 60 years.
(c) Calculating the pensionable salary from the average of last 36 months instead of
12 months.
11. The Chairman agreed with the suggestion and directed that each of the scenario should
be worked out separately.
12. Concluding the discussion, the Chairman invited further suggestions from the members
through post or e-mail so that the report could be finalized at an early date.
The meeting ended with a vote of thanks to the Chair.
**********
45
APPENDIX – 2

nd
Minutes of the 2 Meeting of the Expert Committee for
Review of the Employees' Pension Scheme, 1995
The second meeting of the Expert Committee on Review of Employees' Pension Scheme, 1995
was held at 11 A.M. on 02.02.2010 in the Mini-Committee Room of the Ministry of Labour &
Employment, Shram Shakti Bhawan, New Delhi. The meeting was chaired by Shri S.K.
Srivastava Additional Secretary, Ministry of Labour & Employment, Government of India.
The following members were present in the meeting:
Sh. Nirmal Ghosh, Member (Organising Secretary/INTUC, Kolkata and Member, Central
Board of Trustees, EPF)
Sh. S.P. Subhedar, Member (Actuary and Retd. Managing Director, LIC of India)
Sh. K.C. Mishra, Member (Director & CEO, Lal Bahadur Shastri Institute of Management,
New Delhi)
Sh. Nalin Thakor, Member (President, Social Security Research Centre, Ahmedabad)
Sh. Rajesh Bansal, Member Secretary (Addl. Central Provident Fund Commissioner, EPFO)
Sh. Uday Kumar Verma, Member (Central Provident Fund Commissioner)

Joint Secretary (Social Security), Ministry of Labour & Employment, Member
Sh. J.P. Chowdhary, Member (Member, Central Board of Trustees, EPF)
Sh. Bhudev Chatterjee, Member (Independent Actuary)
Dr. R. Kannan, Member (Member Actuary, IRDA)
Following officers from Ministry of Labour & Employment and Employees’ Provident Fund
Organisation were also present:
Shri S.K. Verma, Director (SS), Ministry of Labour & Employment

Shri S.D. Xavier, Under Secretary, Ministry of Labour & Employment
Shri P.U. Kulkarni, RPFC-I (Pension)
Shri Vineet Gupta, RPFC-II (Actuarial)
2. The Chairman welcomed the members and thanked them for sparing time to tender
their valuable suggestions. He regretted the absence of Sh. Bhudev Chatterjee and other
members. Thereafter, he asked Addl. CPFC (Pension) to take up the items for discussion.
ITEM 1: CONFIRMATION OF MINUTES OF THE 1ST MEETING HELD ON 01.12.2009
Shri Nirmal Ghosh submitted his comments on the minutes of the first meeting. The
Committee approved to include the comments of Sh. S.P.Subhedar, Sh. Bhudev Chatterjee and
Sh. Nirmal Ghosh in the minutes. The draft minutes of the first meeting of the Expert
Committee were accordingly confirmed.
46
ITEM 2: SUGGESTIONS RECEIVED FROM THE MEMBERS OF THE EXPERT
COMMITTEE
Initiating the discussion on the item, Sh. S.P. Subhedar said that the item was well
prepared and presented, particularly the Annexure-5. Further, referring to the 9th-10th combined
Valuation Report on EPS'95, he said that discussing the findings and suggestions of an
actuarial valuation carried out on about 4% of member data would not serve much purpose. He
also pointed out that the design, if any, of the sample used for Valuation should have been
specified.
2.2 The Chairman shared the concern of the member and regretted the data constraints. He
directed that in view of the special exercise undertaken by EPFO, the quantity and quality of
data should improve substantially this time.
The following observations were made by the members regarding the Valuation process
in general and the 9th-10th combined Valuation Report of EPS'95 in particular:
2.3 The average salary of Rs 2789 stated in the 9th-10th combined Valuation Report did not
seem to be consistent with the salary distribution given in Appendix A & B of the Report.
2.4 The gap between the salary growth rate and the interest rate is a crucial factor for
Valuation and the basis for arriving at their assumptions should be spelt out in detail. The
salary growth rate could be higher than stated in the 9th-10th combined Valuation Report in
view of the Indian economic prospects.
2.5 There should be a consensus in the assumption of parameter values and the authority to
decide the same should also be fixed. However, another view was that a Valuing Actuary
cannot be forced to use the assumptions given by his client and that the Valuer should have
professional freedom in arriving at his assumptions.
2.6 Statistical regression model should be used in arriving at these values.
2.7 The Chairman agreed with the views of the members and said that the methodology
used in arriving at these assumptions should be fully specified. He advised the members to
submit their queries about the 9th-10th combined Valuation Report and asked Addl. CPFC
(Pension) to get back with the replies from the Valuing Actuary.
2.8 Shri Nirmal Ghosh said that the rationalization of benefits had two aspects: stopping the
benefit altogether and alteration in scale of benefits. He observed that the latter should be
adhered to as far as possible.
47
2.9 The Chairman said that the Committee would look into the rationalisation of benefits in
an overall framework, while giving preference to the subscribers in the relatively lower income
brackets.
Thereafter, the Chairman requested the members to discuss the suggestions at Item
No.3 of the Agenda.
ITEM 3: SUGGESTIONS TO AMEND EMPLOYEES’ PENSION SCHEME, 1995 TO MEET

THE DEMANDS OF THE SUBSCRIBERS AND TO KEEP THE SCHEME VIABLE
IN THE LONG RUN.
Suggestion 1: Delete provision to para-11(3) for disallowing contribution over statutory

limit without government's share of contribution.
and
Suggestion 2: Introduce sub-para 11(4) for voluntary contribution over the statutory
limit.
3.1.1 Introducing the item Addl. CPFC (Pension) said that according to the existing
provisions voluntary contribution to EPS'95 over the statutory limit (presently Rs 6500/-) is
allowed with the consent of the employee and the employer, but the government contribution
of 1.16% is restricted to the statutory limit. Hence, voluntary contribution over the statutory
limit is deficient by 1.16%. This results in lower income members cross-subsidizing the
pension of higher income members. In order to remove this anomaly, provision should be made
to obtain 1.16% contribution over that part of the salary which exceeds the statutory limit. He
explained that Suggestion 1 is meant to remove the existing provision and Suggestion 2 seeks
to bring in the new provision. He also pointed out that the proviso to para-3(2) of the Scheme
was in contradiction with proviso to para-11(3) and that an amendment in the form of deletion
of the words “the employer and” was required in proviso to para-3(2) of EPS'95.
3.1.2 The members, while supporting the suggestions, asked if the existing members would
be allowed to continue under the existing provision even after the date of amendment. Addl.
CPFC (Pension) replied that the members currently contributing on higher salary would not be
allowed to contribute on higher salary from the date of amendment. However, the benefits
accruing to them till the date of amendment can be quantified and frozen for release at the time
of exit. The Chairman, too, ensured that the amendment would not apply from retrospective
date. He further stated that the suggestion should be accepted as it would stop the cross-
subsidization to the upper income groups at the cost of lower income groups.
48
3.1.3 Sh. Nirmal Ghosh said that he supported the proposal as it was in favour of lower class
members. However, he advised that the proposal should also be placed before the CBT (EPF).
3.2.1 With these discussions the Committee approved the proposals specifying that the
member should be given the option to authorize the employer to divert 1.16% extra from
employer’s contribution, so that the total diversion from employer's contribution to EPS Fund
is 9.49% and to EPF is 2.51% in case of voluntary contribution over the statutory limit. The
suggested amendment of deleting the words “the employer and” in proviso to para-3(2) shall
also be carried out simultaneously.
Suggestion 3: Amending para-11(1) for determination of pensionable salary

3.3.1 The Chairman desired to know the international practice in this regard. The members
stated that the general norm was 36 months. It was suggested that the actuarial impact of the
proposal could be calculated for a new entrant aged around 20.
The Committee approved the proposal for 36 months while agreeing to study its
actuarial impact.
Suggestion 4: Amend para-10(2) to disallow the bonus of two years in pensionable service
3.4.1 The Chairman enquired if the erstwhile FPS’71 had the provision of providing two-
year bonus in pensionable service. RPFC (Pension) replied that it was not there in FPS’71 and
even in EPS'95 the provision would come into effect not earlier than 2015. The Chairman
further enquired if the proposed amendment would make a substantial impact. Sh. S.P.
Subhedar, Actuary, replied that it would make a substantial financial impact.
3.4.2 In response to an apprehension that withdrawing the provision might act as a

disincentive for staying in membership, it was stated that the rule increases pension by over
2.857% of pensionable salary and increases the cost for no rational reason. Unearned service
credit and conservative vesting right was justified to contain turnover and/or reward long
service. However, studies show that conservative vesting rights help retain mediocre.
Moreover, the reasoning can not apply to a legislated plan covering thousands of units with
portability. Hence, it was very appropriate to discontinue unearned service credit procedure at
the earliest.
3.4.3 The Chairman suggested that the proposal should be got actuarially assessed before
taking the final decision.
49
Suggestion 5: Amend para-2:1(ix) & para-12 of EPS'95 to increase the pensionable age
from 58 to 60
3.5.1 The members supported the proposal saying that it was worth implementing in view of
the increasing life expectancy because the contributory period would increase while the benefit
period would decrease. However, a doubt was raised that implementing the suggestion would
pose problems in establishments where the retirement age was less than sixty. Responding to
this the Chairman said that such employees could either wait for two years before claiming
pension or they could opt for early pension at age 58.
3.5.2 The members further observed that in establishments where the superannuation age is
more than the superannuation age under EPS'95, the pension should commence from the later
of such dates so that the employee does not receive pension along with the regular salary. They
also pointed out that the trade unions have earlier fought for higher retirement age. Hence they
should not oppose it here. Instead, they can persuade the various employers to increase the
normal retirement age of their employees to sixty years.
With these deliberations the Committee approved the proposal of increasing the
pensionable age from 58 to 60 years under EPS'95.
Suggestion 6: Amend para-14 to discontinue the option of withdrawal benefit.
3.6.1 Addl. CPFC (Pension) said that the Preamble of the Legislation in the form of EPF &
MP Act, 1952 has been thoroughly defeated due to the provision of option of withdrawal
benefit in EPS'95. He said that of all the pension claims settled in a year, over 80% pertain to
early withdrawal – thereby defeating the purpose of providing regular old age income. In order
to provide a worthwhile old age income, there is an urgent need to carry out the proposed
amendment.
3.6.2 The Chairman desired to know the fate of the members who would leave service before
putting in ten years of service. Addl. CPFC (Pension) replied that such members are issued
“Scheme Certificate” containing all the service details at the time of leaving service and they
can come back and join any time before the age of superannuation. However, we would have to
work out the modalities for people who would superannuate before putting in ten years of
service.
3.6.3 The Chairman expressed apprehension that disallowing the withdrawal option would
amount to denying a contingency help to the members when they are in financial straits.
50
Addl. CPFC (Pension) replied that this need was taken care of by the provisions of withdrawal
available in Provident Fund Scheme and that the early withdrawals from Pension Scheme are
primarily against the philosophy of strengthening the “pool” of a Pension Fund so as to
increase its shock-absorbing capacity.
3.6.4 The members supported the proposal saying that the provision of withdrawal increases
the cost of a family pension plan. It is not justified also because EPS'95 provides pension for
life to surviving spouse of a member/pensioner – a benefit the spouse would be robbed off if
the member withdraws from the Scheme. They said that the proposed amendment is long
overdue and early action will help contain the Pension Fund deficit.
The Committee thus approved the proposal of disallowing the option of early
withdrawal from EPS'95.
Suggestion 7: Delete para-16:5(a) to discontinue the provision of Nominee Pension
3.7.1 At the outset the Chairman desired to have an estimate of nominee pensioners. RPFC
(Pension) replied that about 8000 out of 32 lakh beneficiaries in 2008-09 were nominee
pensioners. The Chairman observed that such a small number would not affect the Pension
Fund too adversely. However, the members said that financial impact should not be a
determinant if the Defined Benefit structure of the Scheme is to be retained.
3.7.2 The Chairman enquired if Nominee Pension outside family was available in
government pension rules. RPFC (Pension) replied that nomination under government pension
rules is allowed only to family members.
3.7.3 One of the members observed that the contribution of a member would go in vain if the
facility of nomination outside family was withdrawn. Addl. CPFC (Pension) replied that one of
the basic concepts of any Pension Scheme is the "Pooling of Risk" whereby the members share
the risk of each other's death or disability. Hence, there was nothing wrong if a member dies
without any family and his contribution is used to fund the pension of fellow members.
With these discussions the Committee approved the proposal for discontinuing the
provision of Nominee Pension outside family.
51
Suggestion 8: Amend para-16:3(c) to reduce the number and maximum age for children
pension
3.8.1 One of the members suggested that only the age should be restricted and not the
number. However, after discussing the various aspects of the proposal the Committee decided
that the existing provision should be continued and accordingly rejected the proposal.
Suggestion 9: Amend para-12(7) to disallow early pension before 55 years of age.
3.9.1 Addl. CPFC (Pension) observed that pension was essentially an old age security benefit
and allowing it before superannuation amounted to ignoring this vital aspect of a pension
scheme. He also said that the design of any pension scheme is such that the benefits accruing to
the members compound in the closing years of their service. However, members are often
ignorant of this fact and they settle at a lower amount of pension by opting early. Hence, the
option for early pension should not be allowed. However, keeping in mind the myriad of
industries catered to by EPS'95 and the varying ages of retirement in such establishments,
option for early pension after age 55 should be allowed.
3.9.2 The members also suggested the proposal saying that if the superannuation age is
increased to sixty years then the eligibility for other provisions such as early pension should
also move up.
With these discussions the Committee approved the proposal of raising the age for early
pension from 50 to 55 years.
Suggestion 10: Merger of EDLI Scheme in EPS'95.
3.10.1 Addl. CPFC (Pension) said that the Valuing Actuary for EDLI has recommended the
merger of the Employees’ Deposit Linked Insurance Scheme’76 with EPS'95, saying that with
the present level of EDLI benefit, the merger would go a long way to mitigate the deficit in the
Pension Fund.
3.10.2 A member suggested that the present benefit under EDLI Scheme should be scrapped.
Instead, the quantum of benefit of the total disability pension should be increased. However,
the Committee approved the proposal as proposed in the agenda.
52
Suggestion 11: Amend para-3(2) of EPS'95 and para-2:f(ii) of EPF Scheme'52 to increase
the statutory wage ceiling from Rs 6500/- to Rs 15,000/-
3.11.1 Introducing the proposal the Chairman said that a correction in the statutory wage
ceiling is long overdue as the last amendment of increasing the wage ceiling from Rs 5000/- to
Rs 6500/- was carried out in 2001. The economic conditions since then have changed
substantially and the amount of pension with above wage ceiling is often meager. Wage
ceilings in similar organizations such as the Employees' State Insurance Corporation have been
revised from time to time. The Chairman also suggested that in addition to the proposed limit
of Rs. fifteen thousand, the proposal for Rs. ten thousand should also be assessed actuarially.
The Committee agreed to have an actuarial assessment of both the wage ceilings, ie Rs
10,000/- as well as 15,000/-. Keeping in consideration the various amendments which have
been approved in the present meeting since the entire issue has to be taken as a total package.
Suggestion 12: Amend para-3(1) to increase the rate of contribution under the Scheme to
13.16%. Provide an annual hike of 3% in the pension amount being
received by the beneficiary.
3.12.1 The members observed that providing an inbuilt indexation of benefits could have a
serious impact on the Pension Fund. They suggested that instead of providing an annual hike
we should provide an increased minimum pension. The Committee agreed and suggested that
the actuarial impact of providing a minimum pension of seven hundred rupees per month
should be studied.
The Committee agreed to study the actuarial impact of providing a minimum pension of
Rs 700/- per month.
Suggestion 13: Amend para-32 of EPS'95 regarding annual actuarial valuation of

EPS'95
3.13.1 Addl. CPFC (Pension) said that the exercise of actuarial valuation is a strenuous task as
it involves collection of data from all the field offices spread across the country. The exercise
invariably spills over to next year thereby causing delay in the subsequent year’s valuation.
Often, therefore, several valuations are commissioned together. He suggested that to make the
exercise more practical and meaningful, the actuarial valuations should be carried out every
five years.
53
3.13.2 The Chairman observed that the exercise of annual valuation is lagging behind by more
than three years and it would be more appropriate to have the valuation every three years. He
cited the example of Employees' State Insurance Corporation where a similar amendment has
been made to provide for actuarial valuation every three years.
The Committee agreed approved the proposal accordingly.
3.1 Summing up the discussion on the item, the Chairman urged the members that
they should support the suggestions keeping in mind that at primarily benefits the lower
earning segment of workers covered by the Employees' Pension Scheme, 1995 and with a
view to provide larger benefits for the larger whole. Committee further desired that the
impact of all the above suggestions should be assessed actuarially.
In addition, the following observations were made by the members:
3.2 While conducting such actuarial studies EPFO should take help of ILO and other
bodies of international repute.
3.3 In response to a suggestion that help could be taken from LIC or the Institute of
Actuaries of India (IoA), it was stated that while the LIC did not have the necessary expertise,
the IoA may not certify such studies, particularly with such poor data. Hence, EPFO should
take steps for improvement of data. An apprehension was expressed that the relief provided in
the past was possibly ill-conceived due to poor quality of data.
ITEM 4: COMPENSATING A MEMBER FOR DELAYED PAYMENT OF PENSION.
4.1 Introducing the item the Addl. CPFC (Pension) informed that the existing manual
provisions state that the pension for a particular month should be credited to the beneficiaries’
account within the first week of the following month. It is suggested that in case the pension
for a particular month is not credited within the stipulated period, EPFO should pay interest on
such period of delay. He further suggested that the rate of interest can be one percent less than
the prevailing rate of interest declared by the Government under EPF Scheme’52 during the
corresponding period.
4.2 A point in question was whether the reckoning of the date of delay should be from the
date of entitlement of pension i.e. attaining 58 years of age or from the date of submission of
pension claim by the member. It was suggested that even if the member makes a delay in
54
presenting his claim for the pension, the compensation should be granted from the date of
entitlement.
The Committee discussed the proposal and approved that the rate of interest to be given
on delayed payment of pension shall be one percent less than the prevailing rate of interest
declared by the Government under Employees' Provident Funds Scheme, 1952 during the
corresponding period.
5. In the end, Chairman requested all the members to give any other suggestions over and
above the proposals which have been considered and decided upon in the present meeting. The
same can also be sent by e-mail (latest by 15th March, 2010).
55
APPENDIX3
Draft Minutes of the 3rd Meeting of the Expert Committee on
Review of the Employees' Pension Scheme, 1995
The third meeting of the Expert Committee on Employees' Pension Scheme, 1995
was held at 11.30 A.M. on 23.07.2010 in the chamber of Sh. S.K. Srivastava, Addl. Secretary
& Chairman of the Expert Committee, Ministry of Labour & Employment, Shram Shakti
Bhawan, New Delhi. The members present in the meeting were as per list enclosed.
The following members intimated their inability to attend the meeting:
Sh. J.P. Chowdhary, Member (Member, Central Board of Trustees, EPF)

Dr. R. Kannan, Member (Member Actuary, IRDA)
Sh. Nalin Thakor, Member (President, Social Security Research Centre, Ahmedabad)

Sh. Samirendra Chatterjee, Member (Central Provident Fund Commissioner)
Sh. Bhudev Chatterjee, Member (Independent Actuary)
2. The Chairman welcomed the members and stated that the objective of the meeting
was to finalise the draft report after taking into account the suggestions received from the
members. Thereafter, he asked Member Secretary to take up the items for discussion.
ITEM 1: CONFIRMATION OF MINUTES OF THE 2nd MEETING HELD ON 02.02.2010
The draft minutes of the second meeting of the Expert Committee were confirmed
after consideration of members’ comments.
ITEM 2: Draft Report of the Expert Committee on Employees’ Pension Scheme, 1995.
&
ITEM 3: Examining the expectations/suggestions received.
The revised draft report prepared after taking into account the proceedings of the
first and second meetings of the Expert Committee, the discussions among the members via e-
mail and Actuary’s report was placed before the Expert Committee for their consideration and
approval.
Initiating the discussion, the Chairman stated that the decision of the Committee to
assess the actuarial impact of the proposals approved and/or considered, has ensured that the
56
draft report is reliable as well as is definite and concise in its recommendations. He invited the
members to suggest modifications in the draft report so that the final report be in accordance
with the mandate given to the Committee. He pointed out that the members may suggest
inclusion of further scenarios in the draft report. He informed the members that in order to
discuss the contents of draft report thread-bare, a Power point presentation has been prepared.
The Member Secretary gave the presentation bringing out the major observations,
findings and recommendations contained in the draft report. He explained the various
scenarios which have been worked out with a view to provide a number of alternatives so that a
final recommendation may be made by the Expert Committee.
Dr. K.C. Mishra remarked that rise in contribution rate while retaining the present
set of benefits will be a cross subsidization from future generation to present generation of
pensioners. He also shared the case of General Motors which was running a defined benefit
scheme and having accumulated 20 billion dollar deficit have to declare itself insolvent.
Sh. Nirmal Ghosh stated that the proposed Provident Fund-cum-Pension Annuity
Scheme can be considered by the workers and workers unions only if there be some minimum
pension. In addition, the wage ceiling may be increased to atleast Rs. 10,000 per month and
the EPF & MP Act, 1952 may be made applicable to the establishments employing 10 or more
employees.
After detailed discussions on the two main alternatives i.e. amendments in the
Employees’ Pension Scheme, 1995 viz-a-viz its replacement with new Provident Fund-cum-
Pension Annuity Scheme, it was decided that the Committee shall recommend Provident Fund-
cum-Pension Annuity Scheme as its first recommendation.
In order to provide a reasonable annuity upon superannuation, the Committee

decided that in the proposed Provident Fund-cum-Pension Annuity Scheme, total rate of
contribution should be at least 13.5%. Out of 13.5%, the 11.5% shall be diverted from the
employer’s share of contribution and 2% shall be contributed by the Central Government.
However, in cases where the rate of contribution is 10% each from employer and employee, the
diversion from employer’s share would be 9.5%, and employee’s share would be 2%, making a
total of 11.5%. The remaining 0.5% of the employer share shall be diverted to EDLI from
57
where the accumulation for providing insurance in case of death and disablement are to be
provided.
The Committee felt that by providing insurance in case of death and disablement,
the proposed scheme is an improvement over New Pension Scheme. The proposed scheme is
also transparent, easy to understand and every member will get full benefit out of his
contributions. This will also ensure that in synchronization with the wage-trends, the wage
ceiling may automatically escalate ensuring that the contributions and corresponding benefits
may also increase. Most important of all, it will ensure easy portability of benefits.
Sh. S.P. Subhedar stated that though the amendments in existing scheme may make
the scheme attractive and viable for few years, further amendments shall be required again after
few years and the contribution rate will have to be enhanced further. He felt that the best
solution may be to go with the proposed PF-cum-Pension Annuity Scheme. He added that the
Committee can not suggest a minimum pension for the proposed PF-cum-Pension Annuity
Scheme. As it is neither feasible nor practical. He gave certain suggestions to add to the draft
report of the Expert Committee relating to the sample data based upon which the actuarial
projections have been made.
It was also decided that in case Central Board of Trustees does not favour the new
scheme and decides to continue with the existing defined benefit scheme i.e. Employees’
Pension Scheme, 1995, the other recommendation of modifying the existing Employees’
Pension Scheme, 1995 may be submitted as second recommendation. The modifications in the
existing scheme have been proposed keeping in view the three main demands of the existing
pensioners and member:
• increase wage ceiling from Rs. 6500/- to Rs 10,000/- .

• provision of annual relief of 3%; and
Providing these higher benefits necessitates increase in rate of contribution which may go upto
18-20%. As this much higher rate appears not feasible, the following six modifications would
also need to be implemented.
58
• The age of superannuation to be raised to 60 years
• The age for early pension to be raised to 55 years
It was informed by Actuary that the rate of contribution for the above benefits package
should be 14.75%.
It was agreed that out of the required rate of 14.75%, 12% may be met by diverting
12% employer share in Pension Fund. However, in cases where the rate of contribution is 10%
each from employer and employee, the diversion of employer’s share would be 10% and
employee’s share would be 2% making total of 12%. The Central Government may contribute
remaining 2.75%.
The members accordingly finalised the above two recommendations for inclusion in
the draft report. It was decided that as the content of the report has been finalised, the report
should be submitted to the central government as early as possible.
59
LIST OF MEMBERS/OFFICERS WHO ATTENDED THE MEETING
OF THE EXPERT COMMITTEE ON
HELD ON 23.07.2010
S.No. Name of the Member of the Committee
1. Sh. Nirmal Ghosh, Member (Organising Secretary/INTUC, Kolkata and Member,

Central Board of Trustees, EPF)
2. Sh. S.P. Subhedar, Member (Actuary and Retd. Managing Director, LIC of India)
3. Dr. K.C. Mishra, Member (Director & CEO, Lal Bahadur Shastri Institute of
Management, New Delhi)
4. Sh. Rajesh Bansal, Member Secretary (Addl. Central Provident Fund

Commissioner, EPFO)
5. Joint Secretary (Social Security), Ministry of Labour & Employment, Member,

represented by Sh. S.K. Verma, Director (Social Security), Ministry of Labour &
Employment

OFFICERS FROM EMPLOYEES’PROVIDENT FUND ORGANISATION
1. Shri P.U. Kulkarni, RPFC-I (Pension)
2. Smt. Aprajita Jaggi, RPFC-II (Actuarial)
3. Shri Vineet Gupta, RPFC-II
Sh. Jayesh Pandit, Actuary attended the meeting as special invitee on behalf of M/s. K.A.
Pandit, Consultant and Actuaries.
60
APPENDIX4

Chronology of the changes in Wage Limits for the purpose of contributions to be
made under the Schemes in EPF&MP Act, 1952

Period Wage limit per month

01.11.1952 to 31.05.1957 Rs. 300/‐

01.06.1957 to 30.12.1962 Rs. 500/‐

31.12.1962 to 10.12.1976 Rs. 1,000/‐

11.12.1976 to 31.08.1985 Rs. 1,600/‐

01.09.1985 to 31.10.1990 Rs. 2,500/‐

01.11.1990 to 30.09.1994 Rs. 3,500/‐

01.10.1994 to 31.05.2001 Rs. 5,000/‐

01‐06‐2001 onwards Rs. 6,500/‐

61
APPENDIX5

62
APPENDIX6

Analysis of Outgoing Payments

• Payments under EPS’95 can be classified into two broad categories:
(i) Monthly Pension Payments (including Commutation & RoC).
(ii) Early Withdrawal Payments.
• As can be seen, more than 1/3rd of what goes out from Pension Fund is
withdrawn prematurely.

70.0% 65.6%
60.0%
50.0%
40.0% 34.4%
30.0%
20.0%
10.0%
0.0%
Pension Withdrawals

63

• We saw above that of the Total Pension Payments, 66% goes in the form of
pension. Its category‐wise break‐up is shown above.
• We see that Early Member Pensioners account for 40% of the pensioners and
37% of the payments.

40.00%

35.00%

30.00%

25.00%

20.00% Number

15.00% Payment
10.00%

5.00%

0.00%
Early Mbr Superan Mbr Orphan Pensnr Parent Pensnr
Mbr Spouse Mbr C hild Spouse C hild
64
APPENDIX – 7

Report of the Valuer on various proposals under consideration of the Committee @ 8% :
Sr. Proposed Amendment to is only for future service Impact on the Pension
No. Employees' Pension Scheme, Fund when compared to the present status (when
1995 Statutory Wage ceiling is Enhancement for future
service only)
Rs. 6,500 Rs. 10,000 Rs. 15,000
Base shortfall
12,822 27,040 69,834
The below figures are
increase/(decrease) in shortfall
Delete Provision Para- 11 (3) of
EPS' 95 :
There should be no option to
contribute beyond the statutory
wage ceiling as the Scheme is
primarily targeted at the lower
1. income group. Government
contribution is limited to 1.16% of (15.08) (5.56) (2.63)
the statutory limit. This gap in
contribution remains un bridged
and the loss is made up through
cross-subsidy by the members with
relatively low salary levels.
2. Introduce Sub-para-11(4) of

(Note -1) (Note -1) (Note -1)
EPS'95 :
If benefit is enhanced from Future 174,068.00

For voluntary contribution over the
statutory wage ceiling:
Contributions over the statutory
limit can be allowed provided the
employee and the employer agree
to contribute for the salary
exceeding the statutory limit,
including the 1.16% contribution
that does not come from the 174,068.00 117,056.50
159,850.50
government in such cases.
65
3. Amend Para-11(1) of EPS'95
For determination of pensionable
salary to increase the period of
average monthly pay drawn from
12 months to 36 months. (5,186) (6,962) (8,774)

To disallow the bonus of two years
in pensionable service by deleting
the option of granting 2 years (14,926) (16,123) (20,178)
bonus upon completion of 20 or
more years of service.
5. Amend Para-2:1(ix) & Para-12 of
EPS'95
To increase the pensionable age (18,250) (23,363) (27,076)
from 58 to 60.
6. Amend Para-14 of EPS'95

To discontinue the option of
withdrawal benefit for less than ten
years of service, except at (5,967) (6,447) (6,776)
superannuation.
7. Delete Para-16:5(a) of EPS'95 Negligible Negligible Negligible
To disallow nominee pension. (Note -2) (Note -2) (Note -2)
8. Amend para-12(7)
To disallow early pension option
(6,822) (8,997) (12,028)
before 55 years of age.
9. Merge the Employees' Deposit
Linked Insurance Scheme, 1976 in
to the Employees' Pension Scheme,
Note -3
1995.
The merger will result in the
following benefits:
(i) The employer contribution of
0.5% received under the EDLI
Scheme will be credited to EPS'95,
thereby raising its level of funding.
(ii) The current surplus in the EDLI
Fund and the future surplus, if any,
will bolster the stability of the
Pension Fund.
66
(iii) The administration charge of
0.01% and inspection charge of
0.005% paid by the employer will
be discontinued.
10 Provide a minimum members
pension of Rs. 1000 to all.
3,012 3,012 3,012
Valuation of different contribution
Note-4
enhancement options as follows:
2.00
Addition to normal contribution 2.00
2.00
Option 1: 44,308 63,377

55,321
Addition to normal contribution 3.34 3.34
3.34
Option 2: 73,994 105,840
92,386
11
5.34 5.34
5.34
Option 3: 118,302 169,217
147,707
7.34 7.34
7.34
Option 4: 162,610 232,594
203,028
10.84 10.84
10.84
Option 5: 240,149 343,503
299,840
Provide for at least one year

contribution instead of one month.
In cases where less than one year
service is rendered before death of
12
the member, the contribution may 1.01 1.01 1.01
be returned with interest (declared
under Employees' Provident Fund
Scheme for that year).
What will be the financial

implication of introducing the
13 provision of giving a pension rise
98,653 173,688 227,616
of 3% (compounded) per annum to
all pensioners
67
implication of restoring back the
14 Note 5 Note 5 Note 5
Commutation Option as per
erstwhile para-12A of EPS'95

implication of restoring back the
15
Return of Captial Option as per 64,697 99,223 148,520
erstwhile para-13 of EPS'95

implication of decreasing the Early
16 Pension Reduction Factor to 3% 10,144 14,033 17,399
(presently 4%) under para-12(7) of
EPS'95

implication of restricting Children
Pension to only 1 child at a time
17 and that too upto only 21 years of (769) (1,082) (1,397)
age? (presently children pension
can be given to 2 children at a time
and upto 25 years of age)

Note :

1) It is assumed that all will contribute on last drawn salary without ceiling and will get
benefit on that salary
2) Since the data in respect of the employee who have nominated other then their family as
a beneficiary is not available and the number of such cases are assumed to be few the
effect is not given.
3) As the EDLI is valued separately the surplus of the EDLI will get transferred to EPS
1995 fund.
4) Effect is the additional contribution being generated and not related to shortfall
5) Since the commutation is the present value of future pension the impact on the liability is
nil as the commutation will happen from the present vale only
6) We feel that by freezing the past service there will be loss to some section of employees
who are going to receive the benefit for salary less than 6500 pm and it may be
administratively hampering to maintain records

68
APPENDIX – 8

Report of the Valuer on various proposals under consideration of the Committee @7.5%:
Sr. Proposed Amendment to is only for future service impact on the Pension Fund
No. Employees' Pension Scheme, when compared to the present status (when Statutory
1995 wage ceiling is Enhancement for future service only)
Rs. 6,500 Rs. 10,000 Rs. 15,000
Base shortfall
21,938 34,048 79,009
The below figures are
increase/(decrease) in shortfall
1. Delete Provision Para- 11 (3)
of EPS' 95 : (16) (6) (3)
There should be no option to
contribute beyond the statutory
wage ceiling as the Scheme is
primarily targeted at the lower
income group. Government
contribution is limited to 1.16%
of the statutory limit. This gap
in contribution remains un
bridged and the loss is made up
through cross-subsidy by the
members with relatively low
salary levels.
2. Introduce Sub-para-11(4) of (Note -1) (Note -1) (Note -1)
EPS'95 :
If benefit is enhanced from 183,035.00
Future
For voluntary contribution over

the statutory wage ceiling: 183,035.00 170,924.75 125,964.25
Contributions over the statutory
limit can be allowed provided
the employee and the employer
agree to contribute for the
salary exceeding the statutory
limit, including the 1.16%
contribution that does not come
from the government in such
cases.
69
For determination of (3,888) (4,640) (5,601)
pensionable salary to increase
the period of average monthly
pay drawn from 12 months to
36 months.

To disallow the bonus of two (12,620) (14,760) (18,315)
years pensionable service by
deleting the option of granting
2 years bonus upon completion
of 20 or more years of service.
5. Amend Para-2:1(ix) & Para-12
of EPS'95 (17,626) (19,850) (23,410)
To increase the pensionable
age from 58 to 60.
6. Amend Para-14 of EPS'95
To discontinue the option of (4,249) (4,650) (4,931)
withdrawal benefit for less than
ten years of service, except at
superannuation.
7. Delete Para-16:5(a) of EPS'95 Negligible Negligible Negligible
To disallow nominee pension. (Note -2) (Note -2) (Note -2)
8. Amend para-12(7)
To disallow early pension (4,916) (6,814) (8,485)
option before 55 years of age.
9. Merge the Employees' Deposit Note -3
Linked Insurance Scheme,
1976 in to the Employees'
Pension Scheme, 1995.
The merger will result in the
following benefits:
(i) The employer contribution
of 0.5% received under the
EDLI Scheme will be credited
to EPS'95, thereby raising its
level of funding.
(ii) The current surplus in the
EDLI Fund and the future
surplus, if any, will bolster the
stability of the Pension Fund.
70
(iii) The administration charge
of 0.01% and inspection charge
of 0.005% paid by the
employer will be discontinued.
10 Provide a minimum members
pension of Rs. 1000 to all. 3,209 3,209 3,209
11 Valuation of different Note-4
contribution enhancement
options as follows:
Addition to normal
contribution 2.00 2.00 2.00
Option 1:
46,079 57,770 66,469
Addition to normal
contribution 3.34 3.34 3.34
Option 2:
76,952 96,476 111,003
5.34 5.34 5.34

Option 3:
123,031 154,246 177,471
7.34 7.34 7.34

Option 4:
169,110 212,016 243,940
10.84 10.84 10.84

Option 5:
249,748 313,114 360,260
12 Provide for at least one year
contribution instead of one 1.01 1.01 1.01
month. In cases where less than
one year service is rendered
before death of the member,
the contribution may be
returned with interest (declared
under Employees' Provident
Fund Scheme for that year).
13 What will be the financial

implication of introducing the 101,896 192,746 246,038
provision of giving a pension
rise of 3% (compounded) per
annum to all pensioners
71
14 What will be the financial Note 5 Note 5 Note 5
implication of restoring back
the Commutation Option as per
erstwhile para-12A of EPS'95

implication of restoring back 65,109 109,121 155,392
the Return of Capital Option as
per erstwhile para-13 of EPS'95

implication of decreasing the 10,871 14,702 18,400
Early Pension Reduction Factor
to 3% (presently 4%) under
para-12(7) of EPS'95

implication of restricting (681) (950) (1,246)
Children Pension to only 1
child at a time and that too upto
only 21 years of age?
(presently children pension can
be given to 2 children at a time
and upto 25 years of age)

Note :
1) It is assumed that all will contribute on last drawn salary without ceiling and will get
benefit on that salary
2) Since the data in respect of the employee who have nominated other then their family as
a beneficiary is not available and the number of such cases are assumed to be few the
effect is not given.
3) As the EDLI is valued separately the surplus of the EDLI will get transferred to EPS
1995 fund.
4) Effect is the additional contribution being generated and not related to shortfall
5) Since the commutation is the present value of future pension the impact on the liability is
nil as the commutation will happen from the present vale only
6) We feel that by freezing the past service there will be loss to some section of employees
who are going to receive the benefit for salary less than 6500 pm and it may be
administratively hampering to maintain records
72
APPENDIX –9

Summary of the Comments of the Members of Expert Committee On the
Proposed Conceptual Draft of Provident FundcumPension Annuity
Scheme

Sh. Nalin Thakor

Nature of the Scheme

• The proposal suggests conversion of EPS, a defined benefit final salary type of pension
scheme into a defined contribution type of pension scheme.

• The proposal needs favourable consideration as it will resolve the issue of (future)
actuarial deficit of EPS. Also, it is in line with changes effected by Central Government
for its ‘new’ employees through New Pension Scheme (NPS).

Contribution rate

• A pension based on employer and Government contributions at 12% or 13.16% of
salary is not likely to provide reasonable pension especially when consideration is
given to inflation, increasing medical care costs, increasing life expectancy.

• Employer contribution rates (12% or 12.50% + about 4.50% as administrative
charges) are already high and an increase in the rates do not seem appropriate.

• It seems appropriate to transfer employee contribution at 6% of salary to ECA. It will
increase contributions for annuity to 18.50% or to 19.16% with employer
contribution at 0.50% to EDLI account, which may be merged with ECA/AA.

Sh. S.P. Subhedar


• Replace the unsustainable DB Scheme, set up in 1995 in lieu of the DC Scheme, by a DC
scheme providing for annuities.

• In favour of the structure of the proposed scheme.

73
Contribution rate

• The EPS, 95 gets only 9.49% contribution, it is better placed than the DC schemes
because pension is not index linked and pension for service prior to 16.11.95 is
related to pension accrued under Family Pension Scheme, 1971.

• The Government was contributing 1.16% to the Employees’ Family Pension Scheme,
1971, as it was a DB scheme. The same was continued perhaps because the EPS, 95 is
essentially a DB Scheme. Would the Government continue that contribution for the
proposed scheme, which would be a DC scheme?

Annuitisation of the Accumulations

The way the proposed scheme is designed, it would appear that the full accumulation will
have to be mandatorily annuitized. However, if it is not so, and if any option were to be
provided to the retirees, about the quantum of accumulation to be annuitized, it would be
exercised against the annuity provider as retirees in good health (bad risk for annuity
providers) would go in for annuitisation of higher proportion of accumulation and those
in indifferent health (good risks for annuity providers) would chose to annuitize only the
minimum amount as mandatorily required.

In case of disablement

The annuity providers must provide appropriate annuity rates as applicable to disabled
lives.

Purchasing of Annuity

• Buyer will have the choice of annuity provider.

• Would the annuity provider be of retiree’s choice or as decided by the EPFO? It would
be desirable to leave the choice of annuity provider to the retiree.

Default by the Employer

Currently, EDLI does not provide for making good the default by an employer in paying
PF contributions. How appropriate it would be to use EDLI funds for making good the
employer defaults in paying PF contributions. Further, many employers would have been
granted exemption from the EDLI because of their having taken insurance scheme from
life insurers.
74

Pensioner as on cut off date and after cut off date

Currently, the pensions are paid from EPS, 95 fund, i.e. the demographic and economic
risks are borne by the EPS, 95 fund. The annuities are not purchased from the approved
annuity providers as is envisaged in the proposed scheme. The number of existing
pensioners is not large and one a closed group, it would dwindle over time, making it
difficult for EPS, 95 fund to bear the demographic risks, it would therefore be desirable
and necessary to purchase from the approved annuity providers appropriate annuities
for the existing pensioners as well.

Transfer of amount in ECA and GCA

When a DB scheme is converted to DC Scheme, the transfer value of the accrued benefits
is credited to individual accounts in DC scheme. The Table ‘E’ is used for transfer of
contributions from EPS’95 to exempted or other pension funds or vice‐versa. Thus it
essentially gives transfer values and can be used as envisaged here.
On assumptions

The three Pension Fund Managers who are managing the government employees’
pension money under the NPS have given more that 11% return. If the proposed scheme
goes through, legislative changes would be needed to amend/replace the EPS, 95 scheme
and it may be possible then to bring about legislative changes needed to entrust the fund
management under the proposed scheme to the Pension fund Managers under NPS. It is
reported in the newspapers that the SBI Pension Fund was likely to entrust management
of Rs. 2000 cr. to PF Managers under NPS.

Sh. Bhudev Chatterjee


• It is Defined Contribution Scheme instead of existing Defined Benefit Scheme for
existing members of EPS, 95.

• The Defined Contribution Scheme favours Employer since it aims to limit the rate of
contribution.

75

Contribution rate

• The shifting of comparing from 9 ½% to 13 1/6% will not result in a substantial
increase in benefit (compare contribution for New Pension Scheme is 20% whereas
27% of salary is contributed to Consolidated Fund of India for Government
Employees)

• We have one Provident Fund Scheme which is Defined Contribution Scheme why do
we need another. We may only increase contribution to the Provident Fund.

Average Salary

Career average salary scheme like Provident Fund is only a part replacement of salary at
retirement, consequently is not adequate of maintenance. The Government of India is
aware of this. Thus all the schemes designed after Employees’ Provident Fund and
Miscellaneous Act, 1952 like, Employees’ Family Pension Scheme, 1971, EDLI, 1976,
Payment of Gratuity Act, 1972, Encashment of Leave are all based on final salary.

Disadvantages of Defined Contribution Scheme

• Fluctuation of yield on investment effects the accumulation of contribution, which is
converted to annuity.

• Changes in annuity rate affects amount of Pension to the beneficiary. Members
retiring at different dates with same accumulation will receive different Pension.

• The administrative expertise of Trustees plays an important part on investment of
fund leading to quantum of pension.

• No minimum pension to members.

• Death at early age and disablement retirement will have a raw deal.

• Annuity market is not at all developed. The LIC issues one type of plan, 3% increase in
annual annuity which is not very satisfactory. It has not received much patronage.

• Accrued benefits can not be altered without consent from the members.

• Defined Pension Scheme be properly funded for existing employees because this is
more beneficial to employees. If required employees will also contribute to the fund
like the New Pension Scheme of the Government.
76

Sh. Nirmal Ghosh

Contribution rate

We could consider for raising contribution from Employer and Employees presently 12%
to 15% and difference of 3% may form additional corpus of EPF Pension Scheme to pay
more pension to the pensioners. This enhancement is subject to acceptance by the
trustees. But equally I should opine that the government contribution for such social
security scheme (EPS, 95) should be increased to fulfill the socio‐economic commitment
for the old age people.

Annuitisation of the Accumulations

The way the proposed scheme is designed, it would appear that the full accumulation will
have to be mandatorily annuitized. However, if it is not so and if any option were to be
provided to the retirees about the quantum of accumulation to be annuitized, it would be
exercised against the annuity provider as retirees in good health (bad risks for annuity
providers) would go in for annuitisation of higher proportion of accumulation and those
in indifferent health (good risks for annuity providers) would chose to annuitize instead
of minimum amount, it should be appropriate and/or standard amount

Comments on sample calculation for various annuity scenarios

My foremost suggestion is to the enhancement of contribution as already been proposed
by which we can have a clear calculation for achieving better benefit for the Pensioners as
well as to reduce persistent deficit also and make comprehensive review to find out a
comparative rate chart of interest from institutions like LIC and other similar institutions
just to select higher interest paying institutions so that pensioners may earn more money
to overcome all crisis at their old age entering into New Pension Scheme. While
considering the calculations as has been envisaged in the Table ‘E’ like actual benefit from
the value of monthly annuity which should be most progressive.

77
APPENDIX – 10

Comparison of The Proposed Scheme With New Pension Scheme, 2009

S. Title Provident Fundcum New Pension Scheme,
No. Annuity Scheme 2009 (voluntary for
other citizens)
(1) (2) (3) (4)

1. Date of 01.04.2011 (proposed) w.e.f. 01.05.2009
applicability
2. Category of Defined contribution Voluntary contribution
Scheme (with minimum
contribution prescribed)
3. Nature of Scheme Mandatory contribution by Voluntary contribution by
Employer and Employee subscriber.
4. Disability In case of disability, the Not available.
Benefit member will be entitled to
get accumulations in
Provident Fund
Contribution Account and
purchase annuity from the
accumulations in Annuity
Contribution Account.

In addition, the member will
be entitled to a lumpsum
from EDLI and add it to the
amounts outstanding in
Annuity Contribution
Account for purchasing the
annuity.

5. Benefit to the In case of death, the spouse Not available.
family in case of of the member will be
death in service entitled to get
accumulations in Provident
Fund Contribution Account
and purchase annuity from
the accumulations in
Account.

In addition, the member will
be entitled to a lumpsum
from EDLI and add it to the
amounts outstanding in
78
other citizens)
Account for purchasing the
annuity.

6. Recurring Benefit Subscriber to purchase Subscriber to purchase
to the employee/ annuity on completion of the annuity on completion of
member on age of 60 years by utilizing the the age of 60 years by
superannuation/ full accumulations i.e. utilizing at least 40% of
retirement. contribution given above with accumulations in the
interest earned thereon. account.

Subscriber may purchase
annuity at any age, at his
option before completion
of the age of 60 years by
utilizing at least 80% of
the accumulations in the
account.

7. Quantum of Annuity value shall be based Annuity value shall base
benefit to member upon the final accumulation in on the percentage of
Annuity Contribution accumulation in the
Account. account utilized for
purchase of annuity and
the type of annuity opted
for.
8. Benefit in case of Member/family to get the Annuity purchased by the
default by the same accumulations in subscriber is linked with
employer Annuity Contribution Account accumulated savings,
as if the default by the since voluntarily
employer would not have subscribed.
occurred. However, the
employer shall not be absolved
from his liability and the
amount due from him shall be
recovered and deposited to
EDLI as soon as possible.
9. Withdrawal No withdrawal permitted No withdrawal permitted
benefit except on exit from Scheme. except on exit from
Scheme.
10. Annual Increase in Annuity value purchased may Annuity value purchased
the benefit be Fixed or incremental, as may be Fixed or
opted for, by the subscriber. incremental, as opted for,
by the subscriber.
11. Commutation of Does not apply. Does not apply.
pension.

79
other citizens)
12. Eligibility for Non‐Government Employees Any citizen of India
Registration/ working in establishments whether employed/self‐
Membership/ covered under EPF & MP Act, employed/unemployed
enrolment. 1952 (without any wage including NRI
ceiling).
13. Age criteria for Any time on joining EPF Age at entry is not less
Registration/Me Scheme 1952/Exempted PF than 18 years and not
mbership/ Scheme but below 60 years more than 55 years
Enrolment of age.
14. Age of Exit (for 60 years 60 years
eligibility for
benefit in normal
course)
15. Registration Through employer, from the Through Point of
/Membership/ date of joining the Presence –Service
Enrolment establishment. Provider. Subscriber to
formalities obtain Permanent
No registration fee. Retirement Account
Number (PRAN) and
complete other
registration formalities.
Charges payable
Rs.100/.
16. Contribution Total rate of contribution in Mandatory subscription
Annuity Contribution Account Rs.500/‐ per transaction
would be 13.5%. Out of or Rs.6000/‐ p.a.
13.5%, the 11.5% shall be
diverted from the employer’s Minimum 4 transactions
share of contribution and 2% in a year.
shall be contributed by the
Central Government.
However, in cases where the Failing which Rs.100/‐
rate of contribution is 10% will be charged (as
each from employer and penalty).
employee, the diversion from
employer’s share would be Government contribution
9.5%, and employee’s share @Rs.1000 p.a. to be
would be 2%, making a total of credited in each account
11.5%. The remaining 0.5% of as announced in
the employer share shall be Budgetary speech for
diverted to EDLI from where three years.
the accumulation for providing
insurance in case of death and
disablement are to be
provided.
80
other citizens)
17. Maintenance of The two accounts in respect of Individual account
accounts each member shall be maintained with additions
maintained separately and the of interest every year.
interest on the outstanding
accumulations in these
accounts shall be added every
year.
18. Cost of Borne by employer during Borne by the individual
administration contribution period. while subscribing & also
Borne by the subscriber while receiving the
while receiving the annuity annuity (built in).
(built in).
19. Adm. Charges/ No charges payable by payable by individual @
fees by CRA/ PoP member. Rs. 30/ per transaction
Administration charges are and annual maintenance
paid by employer on month charges of Rs.350/ p.a.
to month basis, linked to
wages earned by employee,
while employed.
20. Fund No charges payable by Payable by subscriber @
management member. 0.0009% per annum of
charges Charges paid from central amount invested,
administration account. through NAV deduction.
21. Tax exemption for EEE shall apply to the amounts Subscriber contribution is
contribution by in Provident Fund covered in prescribed
employee/employ Contribution Account and investments u/s 80 C of
er/subscriber Annuity Contribution Account. Income Tax Act.

Not applicable in case of
Central Government
contribution/subsidy.
However, lump‐sum
withdrawal from account
and annuity is taxable
income.
22. Annuity providers To be designated by EPFO. Yet to be decided.
23. Nature of saving Social Security plan having Financial plan linked with
plan insurance benefit in returns on investments
contingencies of death and and future economic
disability. conditions.

On other counts, it is a defined
contribution pension scheme.
81

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What is the purpose of the Expert Committee?

What is the purpose of the Expert Committee?

What are the main features of the Employees' Pension Scheme 1995?

What are the main features of the Employees' Pension Scheme 1995?

The Central Government vide Order No. R-15025 /3/2007/SS.II dated 12.06.

Sh. S. K. Srivastava Chairman

Sh. Rajesh Bansal Member Secretary

REPORT OF THE EXPERT COMMITTEE ON

Valuation Number Date of Recommended rate of

1st Actuarial Valuation 15/11/1996 4%

2nd Actuarial Valuation 31/03/1998 5.5%

3rd Actuarial Valuation 31/03/1999 4%

4th Actuarial Valuation 31/03/2000 4%

1st 16.11.1995 to 15.11.1996 +1689

2nd 16.11.1996 to 31.03.1998 +1239

3rd 01.04.1998 to 31.03.1999 +732

4th 01.04.1999 to 31.03.2000 +70

5th 01.04.2000 to 31.03.2001 ‐ 43

6th 01.04.2001 to 31.03.2002 ‐17,136

7th 01.04.2002 to 31.03.2003 ‐19,291

8th 01.04.2003 to 31.03.2004 ‐22,021

9th‐10th 01.04.2004 to 31.03.2006 ‐22,659

• increase in wage ceiling from Rs. 6500/- to Rs 10,000/- .

• Pensionable Salary to be calculated as an average of last 3 years of service.

S.No. Establishment Diversion Government Diversion from Total

• Increase in wage ceiling from Rs. 6500/- to Rs 10,000/- .

• Pensionable Salary to be calculated as an average of last 3 years of service.

Venue : Mini-Committee Room, Ministry of Labour and

Time : 11.00 am.

The following members were present in the meeting:

1. Shri Nirmal Ghosh, Organising Secretary/ INTUC Kolkata, Member.

The following members could not attend the meeting:

1. Shri K. Chandramauli, CPFC

1. Shri S.D. Xavier, Under Secretary, Ministry of Labour & Employment.

1 10.33 - 1.16 11.49

(a) Scrapping the provision of granting 2 years weightage to those whose

(b) Increasing the vesting age from 58 to 60 years.

The meeting ended with a vote of thanks to the Chair.

The following members could not attend the meeting:

Sh. Uday Kumar Verma, Member (Central Provident Fund Commissioner)

Shri S.K. Verma, Director (SS), Ministry of Labour & Employment

ITEM 1: CONFIRMATION OF MINUTES OF THE 1ST MEETING HELD ON 01.12.2009

2.6 Statistical regression model should be used in arriving at these values.

ITEM 3: SUGGESTIONS TO AMEND EMPLOYEES’ PENSION SCHEME, 1995 TO MEET

Suggestion 1: Delete provision to para-11(3) for disallowing contribution over statutory

Suggestion 3: Amending para-11(1) for determination of pensionable salary

3.4.2 In response to an apprehension that withdrawing the provision might act as a

Suggestion 6: Amend para-14 to discontinue the option of withdrawal benefit.

Suggestion 7: Delete para-16:5(a) to discontinue the provision of Nominee Pension

Suggestion 9: Amend para-12(7) to disallow early pension before 55 years of age.

Suggestion 10: Merger of EDLI Scheme in EPS'95.

Suggestion 13: Amend para-32 of EPS'95 regarding annual actuarial valuation of

The Committee agreed approved the proposal accordingly.

In addition, the following observations were made by the members:

ITEM 4: COMPENSATING A MEMBER FOR DELAYED PAYMENT OF PENSION.

The meeting ended with a vote of thanks to the Chair.

The following members intimated their inability to attend the meeting:

Sh. J.P. Chowdhary, Member (Member, Central Board of Trustees, EPF)

The following members could not attend the meeting:

ITEM 1: CONFIRMATION OF MINUTES OF THE 2nd MEETING HELD ON 02.02.2010