Tuesday, November 21, 2017

EPFO Pension Fiasco: The Real Story !

If you are a concerned person with some background information, you may directly go to my earlier blog article titled: EPFO of India- How An Indian Statutory Welfare Organization Functions!

But there are millions in this country who are pretty well unaware of EPFO. The pity is that even the so-called contributing members of this organization are also not very well informed.

I have been requested by a few to write a simplified article about the struggle of thousands of people centered around this central government organisation, in the present times.

Employees' Provident Fund Organisation (EPFO) is a statutory organisation of the Government of India which is under the control of the Labour Ministry.

One can know the official version of the functions and the details of this organisation by visiting the EPFO Official Website.

It's essential function is to provide post retirement income to the work force of  both private and public sector in India by a collaborative process of financial management.

The EPFO is set up under the statutory provisions of the EPFO Act enacted way back in 1952 and amended several times later, the latest being in 2017. The organisation is also called the Provident Fund Organisation.

By the provisions of this act, all employees coming under the purview of this act in India are required to make some monthly contributions towards their Provident Fund, a fund that would be returned back when the employee retires from active service life, together with the interests and incomes accrued.

Towards the fund, both the employee and the employer are required to contribute almost equally. How much they need to contribute was stipulated by the government by way of amendments of the EPFO Act or its Rules and Regulations from time to time.

The contributions to the fund thus varied from 8.33% to 12% of the basic salary and dearness allowance. Suppose an employee had a basic pay of Rs. 1000/- and a DA of Rs.500/- per month, approximately Rs.150/- was deducted from the employee's monthly salary and sent to his provident fund. An equal amount was required to be paid by the employer as well.

The money so collected went directly to the government account held by the EPFO. It was EPFO's responsibility to invest these funds wisely and gain a return well over the bank interest rates. Of course, the government of India ensured the growth of the fund by suitable direct or indirect interventions from time to time.

While the employees governed by the PF Act got their accumulated PF fund at the time of superannuation, direct government employees governed by the pension act got monthly pensions after retirement direct from the governments' budgetary provisions for salaries and pensions. Such employees too contributed towards PF fund. However, they did not have the employer's equal contribution.

Imagine the amount of contribution which went to the EPFO's account every year! How much it is a matter that is not disclosed easily to the contributing employees or the various employers. Besides, employers not making contributions in time are penalized according to the provisions of the PF law.

Since very large sums were to be invested by the EPFO, they exempted some large companies from remitting the monthly PF collections to the EPFO. Instead some companies were allowed to set up independent Provident Fund Trusts under the general superintendence of the EPFO which were allowed to do the investment management of the funds. Such companies were later called the so-called 'Exempted Organisations'. Consequently, those smaller companies who transmitted the funds directly to EPFO were known as 'Non-exempted Organizations'.

Exempted organisations did not have full autonomy in investment decisions as well as fund repayments. That had to be based on the government directives. Even the profit or interest payable on any year was determined by the government, directly or indirectly. 

Before the 1990's the bank interest rates were to the tune of 10-12% or even more. Thus a lump sum CPF retirement accumulation of Rs.25 lakhs, could easily fetch a monthly interest income of Rs.25000/- which was some thing better than the pension income of the pensionable employees. Thus there was not much grievance from the employees covered under the non-pensionable CPF scheme.

However, some individuals with very low financial management acumen often made big follies in handling the good retirement corpus they received as CPF accumulation. They were left with no survival income after a few years of their retirements. Since India joining the liberalization band wagon, the bank interest rates were on a declining trend.

This forced the government to make an amendment in the PF statutes which envisaged a small portion of the employer's contribution to be set aside separately for making monthly pensions, instead of lump sum payment. This amount was payable directly to the EPFO by both exempted and non-exempted organisations.

The amount to be transferred this way amounted to about 8.33-12% of the employees' basic pay and DA as contributed by the employers. However, the government arbitrarily fixed the maximum monthly salary deemed for any employee at Rs.5000/- way back in the 1990's which they periodically enhanced to Rs.15000/-  in the recent times.

Never during the time when the government introduced this change, it did not give any clarifications to the employees nor the employers about the manner in which the pension would be calculated nor the manner in which it would be paid.

Neither the government made any reasons for the arbitrary fixation of a ceiling to the individuals' actual salary for the purpose of pension contribution.

The government appeared to be not so serious in giving the employees' any real benefits. It appeared to every one that the government had actually tried to grab their hard earned savings in the PF.

I was a member to this scheme right from its inception way back in the 1995. Though my actual basic salary and dearness allowance was well above, Rs.5000/- during those days, about Rs. 450/- every month got deducted from my employer's contribution to be sent to the CPFO. My employer being a large central PSU, the Steel Authority of India Limited (SAIL) was an exempted organization because it had been allowed to set up various trusts in various states to manage the CPF funds. To be frank, we have never heard this term Exempted or Non-exempted during our service period any time!

Most employees had no feed back on how this EPFO or the PF trusts functioned during those days. All felt it was some government function for the benefit of all.

My company routinely issued statements of CPF accumulations and also the mandatory deductions towards the so-called PF-pension. However, we never knew how much would be our pensions nor the formula for working out this pension.

Earlier to that there used to be a monthly salary deduction towards what is then known as the family pension scheme (FPS). It never got implemented even after decades of money deductions. This too was a government initiative.

To be very fair, the government of India had such schemes floated with no seriousness of actually implementing it. Indians, have learned from decades of experience that their governmental system is not for any real benefit to the people, but only provided lip service by inefficient democratic functionaries! They also knew that the bureaucrats had gained their legacy from their colonial masters and they were not very comfortable to provide any thing that really benefited the people. Both the bureaucracy and the politico-cracy were reluctant to work for the benefit of the people. They were great practitioners of self aggrandizement!

The so-called EPFO pension or PF-pension got to some serious pension payment only a couple of years ago. Regardless of the persons actual retirement age, EPFO considered retirement at the age of 58. This fallacy is due to the government attitude of amending various laws without proper home works!

The EPFO seemingly never maintained any proper records of the money they collected towards the PF pension from the individual organizations towards the concerned employees. Though they are a central organization, they maintained their accounts state-wise with responsibilities distributed to a government official called the Regional Provident Fund Commissioner. There is only one office in every major state which is normally located in some location in the state capital city. For those who are not staying in the state capitals, it is really a great punishment to locate this regional PF office and get their PF related problem fixed.

Efforts for computerized management of accounts with Universal Account Number (UAN) for every contributing employee member has been implemented only in the recent years. Even now the system is not very transparent! The system still is in its infancy state and it is not very easy to transact through their computer system or know any information that the members might require. The members also cannot put up their applications or file complaints through the website, though they claim it as possible.

Similar to many like me I got retired from my company in 2016. As my company had operating centers in several states, I had to work in a couple of such centers during my career. Though, my company deducted the statutory PF pension contribution for me to the EPFO, the amounts remained within the concerned state regional PF office account, never to be joined against my UAN. The EPFO never attempted to do it of their own. During my retirement time, I remember the pains I had taken to approach these offices and the company's PF coordinators for getting this done and to get my pension (though pea-nuts) paid. Though I had an actual retirement time basic plus DA salary of over Rs.150,000/- the PF-pension for me with the arbitrary government decided ceiling was coming only about Rs.2000/- per month. On the other hand, a direct pensionable government employee was able to draw his PF in lump sum plus a monthly pension of Rs. 75,000/- which was to grow every year till his remaining life time. And the lump sum contributory provident fund that we received was not going to yield any corresponding income when there is no guaranteed returns from any investments on a long period with interest incomes are on a declining trend. Unless you are a financial wizard or your family is financially sound, the employees retired from public sector and private sector are faced with great uncertainties of retired existence!

Here one point is to be made clear. There is absolutely no difference in payment of pension contribution to the EPFO by the organisation whether it is exempted or non-exempted. Exempted or non-exempted is a categorization done by the EPFO officials for their own convenience of accounting for the management of the entire PF funds.

But for the PF-pension contribution, the government asked all to transfer the money to EPFO even for the exempted organizations where authorized PF Trusts have been in service. This perhaps caused many in the exempted organizations to think that the PF pension contribution is a type of government tax and it was being used to augment the government's yearly budget!

A couple of years ago, some employees from some Kerala based organizations learnt the manner in which the EPFO calculated the pension due for each of the contributing employee member. The formula they presented showed a very high pension had there not been the ceiling arbitrarily fixed by the government for the salary!

For example, instead of the Rs.2000/- I would have got about Rs.40000/- per month. Though this is income generated from our own funds with administered returns, this amount would not have grown very high as compared to the conventional pensioners of the government. But surely it guaranteed a better tension free retired life at least for the present times. If we were to make a long term annuity of that level we have to invest over Rs. 50,00,000 ! And there is no provision for future inflation!

With this realization, some retired employees felt that the arbitrary ceiling of salary that the government fixed without the concurrence of the employees must be removed and a higher pension according to actual salary to be given. Several retired employees were ready to refund the lump sum CPF they were paid during retirement.

But to their utter dismay, the EPFO was not in their favor. This government organization which was created for providing and ensuring the retired employees, actually preferred to be non considerate! In my opinion, this unfriendly attitude of this organization is not because of any political directive, but due to bureaucratic attitudes, for which India is conventionally infamous! 

Besides, Indian bureaucrats apparently love people to be drawn to the courts even for such things were things are logical and simple to find solutions and decisions. They know the art of making simple things complicated. Many times, their attitudes and actions even cause their political masters too at the receiving end of higher courts!

Thus EPFO bureaucracy of that time forced the aggrieved retired employees of Kerala and some other states to approach the courts for the justice denied rectified. Initially the courts too were not very considerate due to the wide misrepresentation of various facts.

Finally, the Supreme court of India gave a verdict in favor of the retired employees. It asked the government to pay PF-pension to the members based on actual salary removing the arbitrary ceiling.

The employees and the retirees felt relieved, only to be betrayed by EPFO once again. This time EPFO bureaucrats issued a circular from their side, apparently without the approval of the EPFO board, restricting the Supreme Court judgement in favor of only the employees of the un-exempted organizations only. This was clearly a well calculated movement by the EPFO bureaucrats to make things complicated and get the sadistic pleasure from watching the plight of the helpless retirees.

Unfortunately for India, many bureaucrats are of this nature. They think Indian governance system is their own vested property. Democracy, peoples' right and the constitutional guidelines have no place in their minds. They do things so cleverly or too indifferently that their political masters are left to their mercy. Since they do not really aspire for any final results, they are not often bothered by the way the final decisions move!

This was the time, some people thought of approaching some politicians. Though the PF law is apparently their brain child, the good majority of politicians do not have any real understanding or the thrust to make an effort to understand the problems of the affected people. They normally act, when they feel that it is a good vote bank issue!

The matter was presented with full details and facts by a Member of the Parliament in the central legislative body compelling the government side to make some statements and course of actions. Normally the ruling class try to go against the demands made by any MP if he or she is from the other side. If they act by the genuineness of the matter, it is really something appreciable.

The present government, no doubt, is the one which made some remarkable initiatives with regard to the management of the EPFO.

The present PF-pension issue of removing the arbitrary ceiling of salary for all member employees in accordance with the letter and spirit of the Supreme Court judgement is some thing the government can easily do if they are genuinely interested in the well being of their senior citizens who worked in the factories owned by the government and the private groups in the past.

I hope the present government would act positively in the earliest time possible without falling prey to the bureaucratic objections or misguidance.

The issue is now concerned with all workforce of India because, governmental pensions no more exist now. The existing workforce in private sector, public sector and the government are all benefited by the EPFO working with genuine people concern.

There are agitations initiated by various associations of retired employees to make the issue known to the government and the public.

I earnestly hope the present government would make a difference and a marked action of effective governance in this issue.