Finance
The return on retirement savings parked with the Employees’ Provident Fund Organisation (EPFO) is set to fall to 8.1% for 2021-22, 0.4% lower than the 8.5% rate credited to EPF members’ accounts in the last two years and the lowest rate in several years.
This was the lowest rate in 43 years, and would disappoint over 60 million of its salaried-class subscribers. The last time EPFO paid lower than this rate was in 1977-78 when the interest rate was 8%.
The PF body’s Central Board of Trustees (CBT), chaired by Labour and Employment Minister Bhupender Yadav, is learnt to have recommended the 8.1% rate for the year at its meeting at its meeting in Guwahati on Saturday. The EPFO is the country’s largest retirement fund and the second largest non-banking financial institution with a corpus of about ₹16 lakh crore.
The proposed rate will have to be ratified by the Finance Ministry before it is added to the balance of EPF account holders and usually, the PF accounts are credited with the annual returns with a significant time lag after the year in question has concluded.
The cut in the EPF rate, at a time when inflation is resurging, could attract criticism from central trade unions that had opposed the decision to cut the rate from 8.65% in 2018-19 to 8.5% in 2019-20.
The EPFO has 24.77 crore members with EPF accounts, of which 14.36 crore members were allotted Unique Account Numbers (UANs) as of March 31, 2020. About five crore members are active contributors with fresh accretions made into their EPF accounts during 2019-20.
EPF accounts are mandatory for employees earning up to ₹15,000 a month in firms with over 20 workers, with 12% of the basic pay and dearness allowance deducted as employees’ contribution and another 12% remitted by the employer. Part of this cumulative 24% contribution is remitted to the Employees’ Pension Scheme of 1995.
Details of the income estimates for 2021-22, based on which the 8.10% rate has been recommended, are yet to be ascertained, but it is possible that the recent tumult in the stock markets could have dented returns from EPFO’s equity investments.
The EPFO had begun equity investments in 2015-16, with a ceiling of 15% of fresh inflows. A minimum of 45% and a maximum of 65% of inflows are invested in government securities. In 2020-21, the fund managers invested nearly ₹1.82 lakh crore, which includes equity investments of at least 5% of the incremental EPF inflows into members’ accounts.
