The Punjab and Haryana High Court has changed the manner in which pension is to be calculated in “Higher Wages” cases under contributory pension schemes, holding that the earlier pro-rata method—used to split service periods and reduce pensionable salary—cannot be sustained.
The Court has directed that pensionable salary must be recalculated strictly on the basis of the average monthly pay drawn during the 60 months preceding exit from the pension fund, treating the contributory service period as a continuous whole and without bifurcation. It further ordered complete parity between wages used for recovery of pension contributions and those adopted for fixation of pension, along with consequential monetary benefits, interest, and extended applicability to all similarly situated persons.
Justice Harpreet Singh Brar also quashed the circular dated January 18, 2025, and EPFO’s internal e-mail dated February 14, 2024 “to the extent they prescribe the pro-rata methodology for calculation of pensionable salary in ‘Higher Wages’ cases.” The Court further directed recalculation of pension, release of arrears and payment of interest in clearly structured stages.
“The respondents are directed to forthwith recalculate the pensionable salary of the petitioners on the basis of the average monthly pay drawn during contributory period of service in the span of 60 months preceding the date of exit from the membership of the pension fund, without applying the pro-rata formula or bifurcating the service period,” Justice Brar asserted.
The ruling came on a bunch of 75 petitions filed against the Union of India and other respondents by Surinder Kumar and other employees. They were among others represented by advocates Ankit Midha, Himanshu Chhabra, Sumati Jund, Hitesh Pandit, Abhijeet Singh Rawaley, Mahabir Singh Tanwar and senior counsel Pooja Chopra.
Referring to the issue of ensuring equivalence between contribution and pension computation, Justice Brar held: “The respondents shall ensure complete parity between the wages taken into account for recovery of differential contribution and those adopted for determination of pensionable salary, including due apportionment of arrears of Dearness Allowance and pay revision benefits to the respective months to which they relate. The consequential arrears of pension arising therefrom shall also be recalculated and released to the petitioners.
Justice Brar also directed the respondents to pay simple interest at 8 per cent per annum rate on the arrears of pension arising from the recalculation of pensionable salary without application of the pro-rata formula and from the rectification of disparities between the wages considered for contribution purposes and those adopted for pension fixation. “Such interest shall be calculated from the expiry of 15 days from the date of submission of the joint option forms by the petitioner(s) until the date of actual disbursement of the arrears,” Justice Brar ruled.
The Court also dealt separately with delayed release of arrears already paid post-retirement, noting that such amounts were admittedly released without any interest even though they had become due immediately upon retirement.
Fixing strict timelines, the Court directed that the entire exercise of recalculation, release of arrears, and payment of interest would be completed within 12 weeks from the receiving the orders’ certified copy. Before parting, Justice Brar clarified the verdict’s wider reach by holding it to be a “judgment in rem” intended to benefit all similarly situated persons, whether or not they have approached the court.
What it means
The ruling on “Higher Wages” pension cases effectively changes how pensions will be worked out for a large group of employees under contributory pension schemes. In simple terms, Justice Harpreet Singh Brar has stopped the practice of reducing pension by breaking up an employee’s service period and applying a pro-rata formula.
Instead, pension will now be calculated on the actual average salary drawn during the last 60 months before retirement, treated as one continuous period. This means that employees whose pension was earlier lowered due to formula-based calculations are now entitled to a fresh calculation based on their real pay.
The judgment also carries significant financial consequences. Justice Brar has directed that all short-paid pension amounts must be recalculated and released, along with interest on delayed payments—at 8 per cent per annum, and in some cases even compound interest where arrears were released late after retirement. Importantly, the Court has made it clear that this benefit is not limited to the petitioners alone. It must be extended to all similarly placed pensioners without requiring fresh litigation, and eligible persons can directly approach the authorities for correction and payment of arrears.
