Possible to pay 8.8%, but settle for 8.7%: EPFO

NEW DELHI: The Employees Provident Fund Organization (EPFO) has said it may be possible for it to offer 8.8% interest to its five crore subscribers in 2014-15, a shade higher than last year’s 8.75%, but has gone ahead and suggested a lower payout for the year.
The proposal has not gone down well and the board of trustees is expected to postpone a decision on interest rate until the January-March quarter, the second option given by EPFO.
The proposal to fix the interest rate for the current financial year is scheduled to be discussed by the EPFO’s central board of trustees and the agency responsible for statutory savings has proposed that subscribers settle for an 8.7% payout — which is identical to the rate offered to government employees under the general provident fund (GPF).
According to its calculations, the net interest income for the year, after factoring in all charges, is estimated at just a little under Rs 29,000 crore and an 8.8% outgo will leave EPFO with a small surplus.
The proposal to restrict the interest rate at 8.7% is due to EPFO’s wariness over the impact due to increase in salary ceiling to mandatorily contribute to provident fund — from Rs 6,500 a month to Rs 15,000 — which is expected to result in a higher principal amount and, therefore, more interest payment. The agency’s calculations show that an increase in the rate by five basis point (100 basis points equal a percentage point), results in an additional outgo of Rs 165 crore.
It is hoping that through a series of measures, including collection of belated interest and damages, it will be able to collect an additional Rs 200 crore during the year, which will result in further surplus. Union representatives said if the calculations are indeed correct then the payout should actually go beyond 8.8%.