The Employees Provident Fund Organisation (EPFO) is set to file an application in the Supreme Court against a high court ruling that allowed employees to draw pension on a salary above the current ceiling of Rs 15,000 per month.

According to EPFO, the current monthly contribution toward employees pension scheme (EPS) was limited and was not sufficient for higher pension payouts as it would put a greater financial burden on the organisation.

"We are readying for a review petition. Pension contribution by EPFO subscribers is based on a Rs 15,000 salary ceiling. If pension outgo is calculated on the total salary above the Rs 15,000 threshold, it will be tough to maintain. It will be negative cash flow and we may fall short of several thousand crores every year," Mint quoted a government official as saying this, who requested anonymity.

On April 1, the apex court had dismissed a special leave petition filed by the EPFO against a 2018 Kerala High Court order that had asked the retirement fund body to give pension to all retiring employees on the basis of their full salary, rather than capping the figure on which contribution is calculated at a maximum of Rs 15,000 per month.

That means the pension calculation formula may change resulting in higher pension for retiring employees who have already contributed to pension on full pay in the past. They will be able to draw pension on the basis of actual salary and not on the basis of the earlier Rs 15,000 per month cap on pension contributions.

All employees in the organised sector currently contribute 12 per cent of their salary (basic salary + dearness allowance) to the EPF. The employer makes a matching contribution, of which 8.33 per cent goes to the EPS, until now subject to a salary cap of Rs 15,000. The scheme gives monthly pension based on the number of years put in by the employee multiplied by his last drawn salary and the total gets divided by 70.

Edited by Chitranjan Kumar