NE NEWS SERVICE
NEW DELHI, MARCH 6
The rate of interest for the over 6 crore active subscribers of the Employees’ Provident Fund Organisation (EPFO) for the year 2019-20 has been recommended to be cut to a seven-year low of 8.5 per cent, a 15 basis points downward revision from the 8.65 per cent offered in the previous year. At 8.5 per cent, the EPFO rate is still far higher than the interest rates on most other small savings instruments. The cut in rates comes at a time when the Finance Ministry has been nudging the EPFO to reduce rates in line with the decline in overall interest rates for savings schemes.
Labour and Employment Minister Santosh Kumar Gangwar said the proposed 8.5 per cent rate will leave a surplus of Rs 700 crore with the retirement fund body. “The EPFO has decided to provide 8.5 per cent interest rate on EPF deposits for 2019-20 in the CBT meeting,” Gangwar said after the meeting of the Fund’s Central Board of Trustees Thursday.
The recommendation of the CBT regarding the EPF interest rate now requires ratification from the Finance Ministry which had last year questioned the surplus level and the Fund’s exposure to IL&FS and similar risky entities before granting its nod for the 8.65 per cent rate.
As per calculations shared at the meeting, retaining interest rate at 8.65 per cent would have left a deficit of around Rs 350 crore, while 8.45 per cent would have resulted in a surplus of Rs 1,000 crore, two officials said. Both the finance committee and the Central Board of Trustees (CBT) met today to decide the interest rate based on EPFO’s income projections for the current financial year.
The Finance Ministry has been nudging the EPFO to reduce the rate to sub-8 per cent level in line with the overall interest rate scenario which is under strain given the overall economic slowdown and rising inflation. The Reserve Bank of India (RBI) had maintained status quo on its key policy rate, keeping it unchanged at 5.15 per cent, in its monetary policy review last month.
High small savings rates have been pointed out by banks as the reason for affecting the full transmission of the rate cuts of 135 basis points taken by the RBI over the last one year. The Finance Ministry, however, has hinted moving to a new regime for small savings rate starting April 1. As of now, small savings rates are linked to government securities and are revised quarterly.
As per convention, after the EPFO’s CBT recommends the interest rate, it has to be ratified by the Finance Ministry and then it gets credited into the accounts of the Fund’s subscribers.
In a pre-election announcement, the CBT of the EPFO in February last year had recommended hiking the interest rate to 8.65 per cent for 2018-19 from a five-year low of 8.55 per cent in the previous financial year that had left the Fund with an estimated surplus of Rs 151.67 crore.
The EPFO invests 85 per cent of its annual accruals in the debt market and 15 per cent in equities through exchange-traded funds. At end of March last year, the EPFO had a cumulative investment of Rs 74,324 crore in equities, fetching a return of 14.74 per cent.
Among other decisions taken at the meeting, the CBT also cleared ratification of the restoration of normal pension after 15 years from the date of commutation, which will benefit about 6.3 lakh pensioners who had opted for commutation under the erstwhile Para 12-A of Employees’ Pension Scheme (EPS), 1995 on or before 25.09.2008. The decision to restore full pension is expected to cost Rs 1,300 crore as payment of arrears as against Rs 650 crore estimated earlier, an official said.
In a notification dated February 20, the Labour Ministry had notified the restoration of full pension after 15 years of retirement for pensioners who have commuted part of their pension at the time of retirement.
As per Employees’ Pension Scheme (EPS) rules, an EPFO member who retired before September 26, 2008 could get maximum one-third of pension as lump-sum or commuted pension and rest two-thirds as monthly pension to an employee. As per current EPF rules, EPFO members do not have an option to receive the commutation benefit.
