Pertaining to the low returns from debt investments, Employees Provident Fund Organization (EPFO) has reduced the interest rate to 8.55 percent for 2017-18 as against 8.65 percent for 2016-17 and 8.8 percent in 2015-16. This cut in interest payout affects around 6 crore subscribers.
Last year, after paying an interest rate of 8.65 percent, EPFO had a surplus of Rs. 695 crore and this year, after reaching the rate of 8.55 percent, the surplus was Rs. 586 crore. In the current fiscal the debt investments have earned EPFO less than 8 percent return.
Labour minister Santosh Kumar Gangwar, who heads the body’s central board, said that the government seeks to offer maximum benefit to employees. He shared that the EPF rate is higher than the Government Provident Fund and Public Provident Fund, which are earning 7.6% interest this quarter.
Earlier this year, EPFO had sold Rs. 3,700-crore equity shares in the market, earning a profit of Rs. 1,100 crore. This built the hope that the retirement fund body could retain the interest rate for the current financial year at 8.65%. However, the money earned by this sale has been used to purchase securities at higher rates, as reported.
When EPFO went to the stock market, it was being speculated that it would enhance returns for PF subscribers. But constantly for two years, they have been reducing the rate.
Ashok Singh, a senior leader of the Indian National Trade Union Congress and CBT member said, “You will see the employees’ reaction on the ground soon. The government is taking away all options of better earnings for the common man.”
On 11th February 2018, The Employees’ Provident Fund Organization had organized a ‘Nidhi Aapke Nikat’ (PF Near You) program to address grievances of its members and 2,679 grievances were settled at the meeting. However, now, EPFO would have to deal with the grievances caused by the reduction in EPF interest rate.
Currently, EPFO invests 15 percent of its annual accruals in equities via exchange-traded funds and the remaining 85 percent in debt instruments, including government bonds, private sector bonds, and fixed deposits. As of January-end, its equity investments have earned around 16% returns.
In addition to the reduced interest rate, the CBT has also decided to amend the EPF Act to add more companies under EPFO and increase social security benefits. Currently, all organized sector establishments and firms deploying 20 or more employees come under EPFO. But this ceiling has now been reduced to 10.