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EPFO cuts interest rates to 7-years low of 8.5% in 20

Millions of salaried employees will earn less on their statutory monthly provident fund deductions in 2019-20, with the Employees Provident Fund Organisation (EPFO) Thursday announcing an 8.5% payout for the year, a seven-year low.


The new rate is 15 basis points below the figure for the previous financial year, impacting earnings of its over 60 million active subscribers. The last time EPFO had paid an 8.5% rate was 2012-13.


“Keeping everything in mind, we have decided to pay 8.5% interest rate," labour minister Santosh Gangwar said after the EPFO’s central board of trustees (CBT) meeting in New Delhi.


Though the minister did not elaborate, EPFO authorities said lower earnings from debt investments and the need to have a better surplus to keep the financial health of the organisation were among reasons for the decision.


Mint first reported on 6 January that EPFO is set to lower interest rate at a time of falling interest rates. Even after the lowered rate, EPF deposits will still earn more than any other related investment vehicles including small saving schemes where the rate of return in 2019 was below 8%.


Post 8.5% payout in 2019-20, the EPFO will have a surplus of 700 crore, said Gangwar, who heads the CBT. Last year, the retirement fund manager had a surplus of around 349 crore more than the initial estimate of 151 crore. CBT is the apex decision-making body of the EPFO and comprises of representatives of employers, employees and the government.


Employee representatives criticised the move, demanding a rate of at least 8.65%. The Bharatiya Mazdoor Sangh (BMS), an affiliate of the Rashtraiya Swayamsevak Sangh, said its office bearers in CBT protested against the reduction in rate of interest but “due to non-availability of extra income generation, finance investment committee recommended for 8.5% only."


A.K. Padmanabhan, vice president of the Centre for Indian Trade Unions (CITU) and a member of the CBT said EPFO officials didn’t share any agenda related to the interest rate in advance and came to the meeting “pre-decided on a rate". “This will only increase workers’ angst at a time when several pro-industry labour reforms have brought millions of workers to the street. Workers’ welfare seems not the agenda of the government any more," he said.


However, K.E. Raghunathan, another CBT member representing employers, said that 8.5% rate is far better than most other investments, and the minister decided to pay 8.5% as against 8.45% suggested by the investment committee of the fund manager. Raghunathan claimed that “had CBT matched the 8.65% payout of last fiscal, it would have impacted the financial health of the EPFO."


Raghunathan, who is also an investment committee member, said with Thursday’s decision, the EPFO will disburse around 60,000 crore of corpus as interest among all its subscribers — both active and inactive subscribers.


Overall, EPFO manages a corpus of over 12 trillion and every year, it has a fresh accumulation of around 1.46 trillion. From the annual deposits, the fund manager invests 15% in equity and the rest in debt instruments, including government and corporate bonds. However, before the new rate is implemented the CBT decision will need a formal approval from the finance ministry. Though it is a formality, the finance ministry has the power to question an interest rate announced by EPFO. The 2018-19 interest rate announcement had faced tough questions and the finance ministry approved the move almost seven months after it was announced.


The EPFO on Thursday also ratified and appreciated restoration of normal pension after 15 years from the date of commutation, which will potentially benefit about 630,000 pensioners who had opted for partial withdrawal on or before 25 September 2009.

Source: livemint