EPFO’s Pro-Rata Formula for Higher Pension Illegal; P&H High Court Orders Recalculation on Actual Wages, Grants Interest on Delayed Arrears
Case Name: Surinder Kumar v. Union of India and Others and connected matters
Date of Judgment: 27 May 2026
Citation: CWP-28189-2025 and connected cases
Bench: Justice Harpreet Singh Brar
Held: The Punjab & Haryana High Court held that the Employees’ Provident Fund Organisation (EPFO) could not apply a pro-rata formula for computation of pension in “Higher Wages” cases under Paragraph 11(4) of the Employees’ Pension Scheme, 1995. The Court ruled that the methodology introduced through the EPFO’s internal e-mail dated 14 February 2024 and Circular dated 18 January 2025 had no statutory basis and impermissibly altered the pension scheme through executive instructions. Pension in higher-wage cases must be calculated on the basis of the average monthly pay drawn during the contributory period of the last 60 months preceding retirement, without bifurcating service into pre- and post-2014 periods.
Summary: The batch of petitions challenged the EPFO’s decision to calculate pension on higher wages by applying a pro-rata formula that bifurcated pensionable service into periods before and after 1 September 2014. The petitioners, who had exercised the higher pension option pursuant to the Supreme Court’s decision in EPFO v. Sunil Kumar B., argued that despite contributing on actual higher wages, their pension was being artificially reduced through a methodology not contemplated by the Employees’ Pension Scheme, 1995.
The lead petitioner, Surinder Kumar, had retired from Punjab Water Resources Management and Development Corporation after decades of service. Following exercise of the joint option under Paragraph 11(4) of the Pension Scheme, his pension was revised. However, while calculating the revised pension, the EPFO applied a pro-rata formula introduced through internal administrative communications, resulting in a substantially lower pension than what would have been payable on the basis of actual higher wages.
The petitioners contended that Paragraph 11(4) specifically governs employees contributing on salaries above the statutory ceiling and mandates pension fixation on actual higher wages. Unlike Paragraph 11(1), which applies to wage-ceiling contributors, Paragraph 11(4) contains no provision permitting pro-rata bifurcation or separate computation for different periods of service. They further argued that neither the Supreme Court nor the Pension Scheme itself had authorized the methodology introduced through the impugned circulars.
The EPFO defended the methodology by arguing that the 2014 amendments to the Pension Scheme contemplated pro-rata calculations and that the formula was necessary to preserve the actuarial stability of the pension fund. According to the EPFO, pension had to be computed separately for different service periods and the impugned clarifications merely explained the statutory position.
After examining the statutory framework, the Court found that the pro-rata principle introduced through the impugned e-mail and circular was unsupported by the text of Paragraph 11(4). The Court observed that the earlier EPFO Circular dated 1 June 2023 itself contemplated pension computation in higher-wage cases on the basis of the average monthly pay drawn during the contributory period of the last 60 months preceding retirement. The later communications represented a significant departure from that position.
The Court held that executive instructions cannot amend or override a statutory pension scheme framed under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. By introducing concepts such as bifurcation of service and “highest monthly salary” calculations, the EPFO had effectively rewritten the Pension Scheme through administrative directions, which was legally impermissible.
The Court further emphasized that employees who opted for higher pension and paid additional contributions had a legitimate expectation that pension would be calculated on the same wage base on which contributions were collected. Any contrary interpretation would undermine the beneficial nature of pension legislation and defeat the purpose of the higher pension option itself.
On the issue of pension arrears, the Court found that the EPFO had recovered substantial interest from employees while collecting differential contributions but had failed to compensate pensioners for delayed release of pension arrears. Holding such conduct inequitable, the Court ruled that pensioners were entitled to interest on delayed payments.
The Court also found merit in the petitioners’ grievance regarding inconsistency in wage calculations. While higher wages, including arrears of Dearness Allowance and pay revisions, were considered for recovery of differential contributions, the same figures were not considered while determining pensionable salary. The Court held that such disparity was arbitrary and contrary to the principles governing contributory pension schemes.
Significantly, the Court declared that the judgment would operate as a judgment in rem and that similarly situated pensioners should not be compelled to approach the Court individually for identical relief.
Decision: The Punjab & Haryana High Court allowed the challenge and quashed the EPFO’s Circular dated 18 January 2025 and internal e-mail dated 14 February 2024 to the extent they prescribed pro-rata computation of pension in higher-wage cases. The Court directed the EPFO to recalculate pensions on the basis of the average monthly pay drawn during the contributory period of the last 60 months preceding retirement without applying any pro-rata formula or bifurcation of service. It further directed payment of recalculated arrears, interest on delayed pension benefits, correction of wage disparities in pension computation, and extension of the benefit of the judgment to all similarly situated pensioners.