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Employees' Old Age Benefits

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Special Report

Social Security in Perspective

By SYED SAAD HUSSAIN
Dec 25 - 31, 2000

Social security with respect to the schemes covered by Employees' Old Age Benefits Institution (E.O.B.I.) was the point of study in a 'session for Business & Labour Laws at the Institute of Business Administration, Karachi. The session was conducted by Mr. M. Kamil Shahbazker, Ex-Country Manager, Philips Pakistan.

Mr. Shafiq-ur-Rehman Sheikh, Director E.O.B.I., was the speaker on the occasion. He emphasised on the need for increasing awareness about the scheme offered by E.O.B.I. Mr. Shafiq also revealed that E.O.B.I. is one of the very few profitable government organizations in Pakistan and that the model of E.O.B.I. should also be followed by other government firms. Some of the main points of the discussions were as follows:

Tittle of Law- Employees' Old Age Benefits Act 1976 (Act No. XIV of 1976)

Promulgation Date- This law was promulgated on April 8th, 1976 as EOB Act.

Coverage- The EOB Act covers all industrial, commercial and other organizations which employ 10 or more persons.

Exemption from coverage: Employees in the service of the state, statuary bodies, police force, armed forces, railways, local bodies, municipal committees and other local authorities are exempted from the EOB Act.

Who pays the contribution: Only employers pay the contributions on behalf of their employees. These employers may represent national or multinational organizations. As far as the government employees are concerned, the government itself paid contribution to the institution. This exercise continued from 1986 to 1995. In 1995 the government withdrew its contributions towards the institution.

Rate of contribution: The rate to be paid to the institution is Five (5%) per cent of the wages/salary upto the limit of Rs. 3000/-. In the initial Act of 1976, the wages ceiling on which EOB contribution was payable was Rs. 1000/- which was raised to Rs. 1500/- in 1985 and Rs. 3000/- in 1993 respectively. Thus presently the maximum amount of contribution payable is Rs. 150/- per insured person for the wage/salary of Rs. 3000 and above.

Benefits: There are four benefits available under the Act which are as follows: •Old-Age Pension. •Old-Age Grant. •Survivors' Pension. •Invalidity Pension

Old-Age pension is payable at the age of 60 years for males and 55 years for women. It is relaxed upto five years in case of persons in employment in the occupation of mining for at least ten years immediately proceeding retirement.

Requirement for pension: The requirements for receiving pension have been classified under three options. These are:

A person should have 15 years of insurable employment if he enters the EOB Scheme before the age of 40 years;

A person should have 7 years of insurable employment if he enters the EOB Scheme between 40-45 years of age;

A person should have 5 years of insurable employment if he enters the EOB Scheme at the age of 45 or above.

Calculation of amount of benefit

The calculation of pension for an insured person is based on a number of factors. Therefore E.O.B.I has defined a formula for calculation of Old-Age Pension which takes into account all the necessary factors. This formula is as under: (Average monthly wage *No. of insurable employment years)/50

Here the average monthly wage is calculated on the basis of the wages earned over the last twelve months. Also six months or more will be taken as one full year of insurable employment.

A minimum level of old-age pension is maintained. Presently the minimum pension is Rs. 630/-. If an insured person whose amount of old-age pension is calculated according to the above formula falls short of the minimum pension amount, then he or she will be awarded the minimum pension amount.

Reduced Old-Age pension: Reduced old age pension is payable to the insured persons working in an establishment, which maintains superannuating age less than 60 years but not less than 55 years (55 years in case of woman) which has to be established through documentary evidence.

Calculation of reduced old-age pension: The old-age pension is reduced by one-half per cent of the old-age pension specified in the schedule for each completed month by which the age falls short of 60 years (55 years for woman). The minimum old-age pension is also reduced in the aforesaid manner.

The reduced old-age pension is for life and is not restored when the insured person attains the normal pension age of 60 years.

Invalidity pension

Invalidity pension is payable to that insured person whose normal earnings have dropped to one third due to any incapacitation. The other conditions in this regard are that the degree of invalidity is two third and;

•Contribution in respect of him is payable for 15 years. However, if the insured person has less than 15 years of insurable employment to his credit but not less than 5 years and contributions are payable for not less than three years during the five years preceding immediately his sustainability of invalidity.

•Invalidity pension is not payable retroactively for more than six months

•Invalidity pension is renewed after six months on the medical report. If degree of invalidity remains more than two third, the pension is continued. If invalidity pension is allowed continuously to the insured person for five years then he becomes entitled to invalidity pension for life.

•Invalidity pension commences from the following month that in which insured person satisfies the condition for entitlement.

•Invalidity pension will be calculated according to the formula for old-age pension. Minimum pension is anyhow payable to him even if the formula gives an amount which is less than the minimum pension amount.

Survivor's pension

The requirement for survivor's is as follows:

If the old-age or invalidity pension holder dies, the same amount of pension is allowed to the surviving spouse of the deceased pensioner, and there is no discontinuity of pension as such. It is just treated as a conversion case. The old-age or invalidity pension is converted to survivor's pension.

If an insured person dies while in insurable employment and contribution in respect of him is a payable for at least three years on if an insured person dies while not in insurable employment and contributions in respect of him/her are payable for at least five years, minimum pension would be allowed to the surviving spouse.

The survivor's pension will commence from the month following the insured person's death.

Pension to the Children: If the deceased pensioner is not survived by a spouse, survivor pension will be allowed to his minor children and will be distributed among them equally. The pension is payable up to the age of 18 years to a male child and to the female child till she attains the age of 18 years or her marriage, whichever is earlier.

Pension to Parents: If the deceased pensioner is neither survived by a spouse nor by children, the pension will be paid to the parents of the deceased pensioner for a period of five years.

Old-Age Grant

Old-age grant is allowed to that insured person who is not otherwise entitled to old-age pension. Old-age grant is approved to that insured person who has attained the age of 60 (55 in the case of women) years and has at least two years of insurable employment to his credit.

Calculation of Old-age grant: Old-Age grant is payable in lumpsum @ one month's average wages for each completed year (average wage is to be calculated on the basis of wages on which contribution was payable in respect of twelve calendar months) of insurable employment. A period of six months or more will be treated as one year.

Registration of employers: As per law, it is the responsibility of the employer to get his establishment registered with EOBI. However the field force of the institution also persuades the employers who employ ten or more persons to register themselves with the institution and to fulfil other liabilities as provided by the law.

Registration of employees: Again it is the legal responsibility of the employer to register his employees with the Institution. However the institution persuades the employers to register their employees and issues registration cards to the employees. However the employees can also apply for registration if he is not registered by his employer.

The principle of "Once Covered, Ever Covered": The Institution follows the principle of once covered ever covered for both employees and employers. If an establishment employs ten or more persons and it is registered with the Institution then even if the number of persons reduces to one it will have to fulfil his liabilities in respect of that employee.

A similar case is with the employees except that they have to work in a registerable establishment so that their service may be treated as insurable employment under the EOB Act.

Continuity of insurable employment: Continuity of insurable employment is not necessary to claim EOB benefits. The service of an insured person with registered establishments is considered for calculation of insurable employment while his services with the unregistered establishments would be left out.

Contribution can be deposited only with the banks: The employers are to deposit contributions only in the HBL authorized branches. Likewise the EOBI pensioners can derive pensions only from that HBL branch which has been allowed to them as per their pension card. The offices of the Institution are not allowed to receive any contribution or disburse and pension.

The other members who organized the session were: •Ahmed Ali Siddiqui, •Nasir Hussain Khadim, •Imran Majid.