PF interest rate stays at 8.25% as EPFO rejects suggestion to lower it to 8.10%

The Employees’ Provident Fund Organisation (EPFO) has recommended retaining the provident fund interest rate at 8.25% for 2025-26, rejecting suggestions from its own investment panel and the Ministry of Finance to lower it to 8.10%.

The decision was taken by the Central Board of Trustees (CBT), chaired by Labour and Employment Minister Mansukh Mandaviya, and will benefit over 7.8 crore contributing subscribers. The rate remains unchanged for the third consecutive year.

Internal panel had advised a cut

The move comes despite the EPFO’s investment sub-committee recommending a reduction to 8.10%, a proposal that had also received concurrence from the Ministry of Finance.

According to discussions during the CBT meeting, maintaining the rate at 8.25% could result in a projected deficit of Rs 944.06 crore for 2025-26. Had the rate been reduced to 8.10%, the fund body would have generated a surplus of Rs 1,675.82 crore, members present at the meeting indicated.

In the previous financial year, 2024-25, the EPFO reported a surplus of Rs 5,480.34 crore based on income and expenditure details shared with trustees.

SP Tiwari, CBT member and National General Secretary of the Trade Union Co-ordination Centre, said the reduction proposal was based on current year contribution estimates and projected surplus calculations. However, following representations by trade unions, the board agreed to retain the higher rate, with the projected shortfall expected to be adjusted from the previous year’s surplus.

Market volatility and political context

Board members noted that the interest rate calculations are based on income estimates for 11 months and remain subject to revision at the end of March. The projected deficit, they said, comes amid a slide in stock markets and broader financial market uncertainty.

Vineet Nahata, CBT member and employers’ representative from the PHD Chamber of Commerce and Industry, said the decision to hold the rate steady reflects a commitment to stable returns for subscribers despite geopolitical tensions and market volatility.

The EPFO’s returns are linked to yields on government securities and equity investments, including exchange-traded funds. Strong equity performance in recent years has helped the fund body maintain interest payouts above 8% consistently.

The decision also comes in a year when elections are scheduled in four states and one Union Territory. The previous increase in the EPFO interest rate to 8.25% for 2023-24 was announced ahead of the 2024 general elections, up from 8.15% in 2022-23.

While trustees did not formally link the decision to electoral considerations, the timing has drawn attention in policy circles.

Ratification pending

The recommendation will now be sent to the Ministry of Finance for ratification. Once approved, the EPFO will credit the interest to subscribers’ accounts.

The Ministry of Labour and Employment said in a statement that the EPFO has been able to sustain returns above 8% in recent years due to “good returns given by ETF and other investments”. The ministry described the decision as reflective of the fund’s strong investment portfolio and its ability to deliver competitive returns.

Relief for inoperative accounts

Separately, the board approved a pilot initiative to facilitate settlement of inoperative EPF accounts.

Nearly Rs 2,800 crore lying in such accounts is expected to be released in phases. In the first phase, around 1.33 lakh accounts with balances of Rs 1,000 or less, amounting to Rs 5.68 crore, will be covered. Funds will be credited directly to Aadhaar-seeded and EPFO-linked bank accounts without requiring fresh claims.

An account is treated as inoperative if no contribution is received for three consecutive years after the member turns 55 or retires.

New social security schemes

The board also approved notification of new social security schemes under the Code on Social Security, 2020, aligning the EPF, Employees’ Pension Scheme (EPS) and Employees’ Deposit Linked Insurance (EDLI) frameworks with the new legislation.

Some employee representatives called for wider consultation before implementation. R Karumalaiyan, employees’ representative in the CBT and member of the Centre of Indian Trade Unions, said the new schemes should undergo tripartite consultation with trade unions.

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What it means for subscribers

For EPF subscribers, the immediate impact is continuity. The 8.25% rate ensures stable returns for another year, cushioning savings amid financial market volatility.

For the EPFO, however, the decision narrows its fiscal buffer. Adjusting a projected deficit against previous surplus reduces flexibility should market returns weaken further.

The longer-term sustainability of returns above 8% will depend on bond yields, equity market performance and contribution growth.

For now, the fund has chosen stability over prudence-driven reduction — a decision that will be closely watched once final ratification is completed.