P&H High Court Quashes EPFO Circular Mandating Pro-Rata Pension For Higher Wage Employees, Holds It Contrary To EPS Scheme

The Punjab and Haryana High Court has quashed a circular issued by the Employees' Provident Fund Organisation (EPFO) mandating pro-rata computation of pension for employees opting for higher wages under the Employees' Pension Scheme, 1995 (EPS, 1995), holding it to be contrary to the statutory scheme and Supreme Court case in State of Uttar Pradesh vs. Arvind Kumar Srivastava, 2014. [2026 LiveLaw (PH) 205]Justice Harpreet Singh Brar said, "The Circular dated 18.01.2025...and the internal e-mail dated 14.02.2024...are hereby quashed to the extent they prescribe the pro-rata methodology for calculation of pensionable salary in “Higher Wages” cases. Consequently, the respondents are directed to forthwith recalculate the pensionable salary of the petitioner(s) on the basis of the average monthly pay drawn during contributory period of service in the span of 60 months preceding the date of exit from the membership of the pension fund, without applying the pro-rata formula or bifurcating the service period."The Court opined that, "the pro-rata methodology for “Higher Wages” cases sought to be introduced through the e-mail dated 14.02.2024...and clarification dated 18.01.2025..., travels beyond the statutory framework of the 1995 Pension Scheme and cannot be sustained in law. In such cases, the pensionable salary is required to be determined based on average monthly pay drawn during contributory period of service in the span of 60 months preceding the date of exit from the membership of the pension fund."It also observed that, "It is a fundamental principle of any contributory pension scheme that there must be a parity between the wages on which an employee pays their share and the wages used to determine their eventual benefit. Any divergence between these two figures, where the department accepts contributions on a higher wage but calculates the pension on a lower one, is inherently discriminatory and legally unsustainable.":These observations were made while deciding a batch of over 70 writ petitions.The petitions challenged the validity of EPFO circular dated January 18, 2025, along with an internal communication dated February 14, 2024, which prescribed a methodology for calculating pension on a pro-rata basis even in cases where employees had exercised the joint option to contribute on higher wages under Paragraph 11(4) of the EPS, 1995.The petitioners, who had contributed to the pension fund on actual salaries exceeding the statutory wage ceiling, contended that their pension ought to be calculated based on actual wages without any pro-rata reduction.The main issues for consideration were whether pension for employees opting for higher wages under Paragraph 11(4) of EPS, 1995 can be subjected to pro-rata computation and validity of EPFO circular dated January 18, 2025 and internal email dated February 14, 2024.Also, Interpretation of “pensionable salary” under the EPS, 1995.The petitioners argued that paragraph 11(4) of EPS, 1995 explicitly provides that pensionable salary should be based on actual wages where joint option is exercised.The concept of pro-rata computation applies only to wage-ceiling cases under Paragraph 11(1), not to higher wage cases and the impugned circulars introduce artificial bifurcation of service into pre- and post-September 1, 2014 periods, which is not contemplated under the scheme, submitted the petitioners.After a detailed analysis of the submissions, the Court said that, "The respondents shall ensure complete parity between the wages taken into account for recovery of differential contribution and those adopted for determination of pensionable salary, including due apportionment of arrears of Dearness Allowance and pay revision benefits to the respective months to which they relate. The consequential arrears of pension arising therefrom shall also be recalculated and released to the petitioner."The respondents are directed to pay simple interest at the rate of 8% per annum on the aforementioned arrears of pension arising from the recalculation of pensionable salary without application of the pro-rata formula and from the rectification of disparities between the wages considered for contribution purposes and those adopted for pension fixation. Such interest shall be calculated from the expiry of 15 days from the date of submission of the joint option forms by the petitioner(s) until the date of actual disbursement of the arrears, it added.Following directions were also passed by the Court:Admittedly, the petitioner(s) were not paid any interest on the delayed release of arrears representing the difference between the pension payable on higher wages and the pension originally sanctioned upon retirement, even though such amounts had become due immediately upon retirement. For instance, with regards to the petitioner in CWP-28189-2025, an amount of ₹13,33,882/- towards the difference between the pension payable on higher wages and the pension originally sanctioned upon retirement...

P&H High Court Quashes EPFO Circular Mandating Pro-Rata Pension For Higher Wage Employees, Holds It Contrary To EPS Scheme

Aiman J. Chishti

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Aiman J. Chishti

P&H High Court Quashes EPFO Circular Mandating Pro-Rata Pension For Higher Wage Employees, Holds It Contrary To EPS Scheme

Aiman J. Chishti

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Aiman J. Chishti

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