EPFO could raise rate, increase basic pension
Employees’ Provident Fund Organisation (EPFO), under the labour ministry, may raise the interest rate for the 45 million subscribers of employees’ provident fund (EPF) and also the minimum pension paid from Rs 1,000 per month to Rs 2,000 per month, officials with direct knowledge of the matter said.
The move, experts said, would be in line with a slew of populist announcements made by the Narendra Modi government ahead of the Lok Sabha elections. There have been demands that the pension amount for subscribers be increased after the government, in its Interim Budget, announced a Rs 3,000 a month pension for workers in the so-called informal sector.
The Central Board of Trustees (CBT) of the social security fund for organised sector employees are meeting on Thursday to decide on the two issues. It was originally thought that they would retain the interest rate in a low-interest regime — which itself would have benefited the subscribers. The interest rate is the rate at which their provident fund earns interest.
Although returns from investments in equity have been hit due to market volatility, the total interest income is sufficient to give a small increase in interest rate in the current financial year compared to the 8.55% given in the previous financial year, the officials added on condition of anonymity. EPFO may consider passing on a part of the excess surplus to its subscribers, one of the officials said.
The CBT, which has representatives from the government, companies, and trade unions, will meet on Thursday to review the financial position, returns from investments and the surplus.
After the assessment, the final rate will be decided, confirmed a member of the board who did not wish to be named.
The first official said that the government “tacitly” interferes with the decisions of CBT due to its dominant position and often tries to keep interest paid on EPF savings comparable with other small saving schemes of the government, most of which are managed by the finance ministry.The average interest rate of the public provident fund (PPF) and the National Savings Certificate (NSC) — two such schemes — was 7.7% in 2018.
“EPFO has kept significant amount as surplus, which should be ideally distributed among the subscribers. The money belongs to the workers. Now, it is the election season, hence a higher interest rate can be offered to the subscribers,” a former CBT member said. Labour and employment minister Santosh Kumar Gangwar told the Rajya Sabha on February 6 that investments in equities were allowed by the Central Board of Trustees (CBT) since 2015-16 with an eye on higher returns.
Initially, only 5% of the “incremental funds were invested in equities and a related investment, but gradually the exposure was raised to 10% in 2016-17 and 15% in 2017-18,” he said. Currently, EPFO invests in equities through subscribing to so-called exchange-traded funds (ETFs).
The former CBT member added that the returns on equities this year have not been very good. Mint reported this week that the returns on two ETFs, CPSE ETF and Bharat 22 ETF, both a basket of stocks of state-oowned companies — the investment was made to help the government meet its disinvestment target — were lower than expected. The two returned just 1.89% and 0.48% till end December, the Mint report said. “EPFO is custodian of workers’ savings and it must pass on the entire benefit in the form of interest rate to its subscriber,” Ashok Singh of INTUC and a former member of CBT said.
Another former CBD member said,“In principle, EPFO should be an independent organisation, but in practice, interest rates and other important affairs of the fund are greatly influenced by the government through labour ministry”.
Virjesh Upadhyay, national secretary of Bharatiya Mazdoor Sangh (BMS) and a member of the board, said EPFO is an autonomous body and it takes its decisions independently. “It is controlled by us, the workers.”
According to a report published in HT on February 18, the BMS at its national executive meeting held last week demanded to address the shortcomings in the Employee Provident Fund pension scheme. “Till such a decision is taken, a minimum Rs 5,000 per month should be declared as pension for EPF contributors,” it said.