BackEPFO suggests lowering of PF interest rate to 8.7%
EPFO says because of an improvement in the economic situation, debt market investments may not earn as much as they did the previous year
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New Delhi: Nearly 50 million salaried workers are likely to earn interest of 8.7% on their employees’ provident fund (EPF) in the year to March, less than what their retirement corpus earned in 2013-14.
Ahead of a meeting on Tuesday of the Central Board of Trustees (CBT), the apex decision making body of the Employees’ Provident Fund Organisation (EPFO), the retirement fund manager suggested that the payout be cut to 8.7% in 2014-15 from 8.75% in the preceding year.
EPFO, in its agenda note to CBT members, said that because of an improvement in the economic situation, debt market investments may not earn as much as they did the previous year.
“Due to global uncertainty and downturn in domestic economy, the rate of interest" in the previous year “has been on higher side...particularly for more than nine months period in 2013-14, the rate of interest on government securities (G-Sec), state development loans (SDLs) and government guaranteed securities" was above 9%, the labour ministry controlled EPFO said. Mint has reviewed a copy of the note.
However, with the election of a stable government and expectations of the economy doing much better than in previous years, interest rates have moderated considerably.
“The interest rate on G-Sec have now come down to 8.6% from 8.8%. This moderation is being witnessed since April 2014. It is also expected that RBI (Reserve Bank of India) may announce further rate cut which may further reduce the interest on government securities," the agenda note said.
The retirement manager has estimated that in 2014-15, it will manage an income of ₹ 28,986.46 crore and another ₹ 149.96 crore is pending as surplus from its earnings last year.
With a total income of ₹ 29,136.42 crore, EPFO can give an 8.8% interest rate to its subscribers in the current fiscal year, but the body believes that since the government has decided to enhance the wage ceiling from ₹ 6,500 to ₹ 15,000 for mandatory PF compliance, it may not be possible for it to raise the interest rate.
A higher wage ceiling means all workers earning up to ₹ 15,000 per month will mandatorily fall under the compliance bracket. The government, however, is yet to notify it, leading to lower accumulation of funds and interest income.
“If we give 8.8% interest rate this year, then EPFO will have a surplus of ₹ 77 crore, and if the interest rate remains at 8.75%, then we will have surplus of ₹ 242 crore, but the enhanced ceiling of wage of PF deduction is something that we need to keep in mind while deciding the payout," said a labour ministry official requesting anonymity.
The official said EPFO can either announce an 8.7% interest rate or wait till the end of the current financial year to announce the interest payout after most of its income comes in.
In view of this, the board of trustees may either “declare 8.7% interest or such other rate of interest as is considered appropriate" or “to defer this agenda to be considered by CBT in the last quarter of the financial year where actual impact of the enhancement of wage ceiling from ₹ 6,500 to ₹ 15,000 can be assessed appropriately," according to the note.
The board, chaired by labour minister Narendra Singh Tomar and represented by trade unions, industries and government officials, will take a final call on Tuesday.
“I believe the apprehensions about wage ceiling hike and impact on interest rate are misplaced. EPFO can easily go ahead and announce a 5 basis points higher rate than last year or at worst case keep the rate unchanged at 8.75% now," said D.L. Sachdeva, an employee representative in CBT. A basis point is one-hundredth of a percentage point.
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