Your retirement payout might just get a little sweeter!

According to a new proposal, subscribers to the Employees’ Provident Fund Organisation (EFPO) may get a part of their retirement payout in the form of quasi-MF units, proportionate to the money invested in equities, says a news report. 

EFPO invests its annual incremental corpus – around Rs. 1.4 lakh crore – in two ways: this year 15% was invested in stocks through exchange-traded funds, and the remaining in government securities and debt. Presently, a subscriber receives a consolidated sum on retirement, which is calculated on the interest rate derived by EFPO’s Central Board of Trustees (CBT). However, if the new proposal is implemented, then a part of this sum will be paid in units (like that of Mutual Funds) – which can be enchased at the exit, or deferred for future withdrawal. Officers are mulling considering converting 15% of the contributions into such units and allotting them to subscribers directly. 

How does this sweeten your retirement?

For starters, you get a diverse set of returns; one in the form of payout and other in the form of equity units, which will give you some protection against lower interest rates. This is because the return (over 13% since 2015) on equity investment undertaken by EFPO is not taken into consideration when calculating the interest rate. Next, you can choose to defer the withdrawal of such units at the time of exit, hoping for better returns in the future. 

An officer quoted in the report explains, “Once a subscriber decides to withdraw their PF, 85% of total investment is paid back along with the rate of interest declared while their 15% of total investment made in equity is paid back by multiplying the units accumulated with the value of equity on that particular day... The subscriber would also have an option to defer the withdrawal of equity investment by one to two years, depending on the tenure finalised by CBT, if he thinks the same can fetch better returns later.” 

Why is this proposal important?

The move will ensure that the dividend earned on equity investments will directly benefit the over 45 million subscribers of EFPO. Since 2015 – when EFPO started investing a part of their corpus in equities (starting at 5%) – the contribution has not only increased to 15%, but the cumulative return during the said period has been 13.72%. Compare this to the interest rates offered by EFPO – 8.75% (2015), 8.8% (2016) and 8.65% (2017). The report explains, “... The investment in equity has been opposed by trade unions on the grounds that returns are not assured and that, in the absence of any sell-off policy, the returns remain on paper and do not bring monetary benefits. The proposal under consideration should counter that argument.”

Later this month, when the CBT convenes, the proposal is expected to be approved. “If this proposal is implemented, subscribers can check the status of their PF in terms of investment in debt and equity-based units allotted to them.”