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Nod to pension bite off PF

New Delhi, Nov. 11: Employees in both the private and the public sector will be affected by a Supreme Court ruling today that upheld a government scheme diverting a part of the employer’s contribution to provident fund as pension.

Under the 1996 scheme, of the employer’s total contribution, an amount equivalent to 8.33 per cent of the basic salary and dearness allowance of an employee would be transferred every month to a pension fund set up by the Centre. Out of this, the provident fund department would disburse monthly pension after retirement.

About 80 petitions were filed against the scheme by various trade and employees’ unions across the country, who feared that managements would withhold the money on the pretext of contributing to the pension fund.

The unions also argued that the scheme did not offer any new benefit to employees while creating the impression that it did. Citu general secretary M.K. Pandhe pointed out that the scheme merely juggled with money that was already due to employees and diverted it into a new fund. Employees did not get any more money.

But a division bench of Justices S. Rajendra Babu and K.G. Balakrishnan upheld the scheme and dismissed all the petitions.

The judges exempted organisations having “better pension schemes” than that offered by the government from its ambit, but said the issue would be examined separately.

Most employees’ unions had challenged the government’s scheme on the ground that it allowed “arbitrary” withholding of dues by managements. The matter was transferred to the apex court after different high courts gave conflicting judgments.

The Employees’ Provident Fund and Miscellaneous Provisions (Amendment) Act, 1996, had brought the scheme into operation. The prevailing family pension scheme was merged into it. Under the scheme, the employees’ contribution to the provident fund was not touched.

The monthly pension payable to an employee is computed on the basis of pensionable salary multiplied by pensionable service divided by 70. The pensionable salary is calculated by taking the average salary drawn in the last 12 months of service before retirement.

Hence, if an employee puts in 35 years of service before retirement, he would be entitled to a pension equivalent to half of the monthly salary drawn in the last year of service.

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