To Cap Max Salary At Rs. 15,000 For Quantifying Pension Is Absolutely Unrealistic: Kerala HC Sets Aside Employee's Pension (Amendment) Scheme, 2014 [Read Judgment]

“It is common knowledge that, even a manual labourer is paid more than the said amounts as daily wages. Therefore, to limit the maximum salary at Rs.15,000/- for pension would deprive most of the employees of a decent pension in their old age.”

The Kerala High Court has set aside Employee's Pension (Amendment) Scheme, 2014 that capped maximum pensionable salary to Rs.15, 000 per month, observing that it is absolutely unrealistic and would deprive most of the employees of a decent pension in their old age.

 The division bench comprising Justice K. Surendra Mohan and Justice A.M. Babu allowed the writ petitions filed by various employees against the amendment brought to the scheme.

The amendment had the brought following changes.

• Limits the maximum pensionable salary to Rs.15,000 per month. Prior to the amendment, though the maximum pensionable salary was only Rs.6,500 per month, the proviso to the said paragraph permitted an employee to be paid pension on the basis of the actual salary drawn by him provided, contribution was remitted by him on the basis of the actual salary drawn by him preceded by a joint request made for such purpose jointly with his employer. The said proviso has been omitted by the amendment thereby capping the maximum pensionable salary at Rs.15,000. The Scheme has been amended further by a subsequent notification, the Employee's Pension (Fifth Amendment) Scheme, 2016 to provide that the pensionable salary for the existing members who prefer a fresh option, shall be based on the higher salary.


• Confers an option on the existing members as on 1.9.2014 to submit a fresh option jointly with their employer to continue to contribute on salary exceeding Rs.15,000 per month. Upon such an option, the employee would have to make a further contribution at the rate of 1.16% on the salary exceeding Rs.15,000/-, additionally. Such a fresh option would have to be exercised within a period of six months from 1.9.2014. A power to condone the omission to exercise the fresh option within the said period of six months by a further period of six months is conferred on the Regional Provident Fund Commissioner. If no such option is made, the contribution already made in excess of the wage ceiling limit would be diverted to the Provident Fund Account, along with interest.


• Provides that monthly pension shall be determined on pro-rata basis for pensionable service up to 1st of September, 2014 at the maximum pensionable salary of Rs.6,500 and for the period thereafter at the maximum pensionable salary of Rs.15,000 per month.


• Provides for withdrawal of the benefits where a member has not rendered the eligible service as required.

The bench rejected the contention of the authorities that payment of pension computed on the basis of the contributions made on their actual salaries by the employees would deplete the Pension Fund and would make the scheme unworkable.

The court observed: “As per the amendments, the maximum pensionable salary has been fixed at Rs.15,000/- thereby disentitling the persons who have contributed on the basis of their actual salaries to any benefits on the basis of the excess contributions made by them. The said provision is arbitrary and cannot be sustained. The employees, who have been making contributions on the basis of their actual salaries after submitting a joint option with their employers as required by the Pension Scheme, are denied the benefits of their contributions by the said amendments without any justification. Apart from the above, to cap the salary at Rs. 15,000/- for quantifying pension is absolutely unrealistic. A monthly salary of Rs.15,000/- works out only to about Rs.500/- per day. It is common knowledge that, even a manual labourer is paid more than the said amounts as daily wages. Therefore, to limit the maximum salary at Rs.15,000/- for pension would deprive most of the employees of a decent pension in their old age. Since the pension scheme is intended to provide succour to the retired employees, the said object would be defeated by capping the salary.”

The court said that it is the duty of the trustees of the fund is to administer the same for the benefit of the employees - by wise investments and efficient management and they have no right to deny the pension legitimately due to them on the ground that the fund would get depleted. It also said that the effect of the amendments to the pension scheme is to create different classes of pensioners on the basis of the date, 1.9.2014, the date on which the amended scheme came into force.

The court also observed there is no evidence of the fact that the fund is getting depleted by the payment of pension.

“If at all, a situation where the Fund base gets eroded occurs, the situation could be remedied at that time by enhancing the rates of contributions of persons contributing to the Fund through a legislative exercise. The attempt to maintain the stability of the fund by reducing the pension would only be counter productive and would defeat the very purpose of the enactment,” the bench added.