EPFO(employee providend fund organisation) recommends 9.5% interest

The EPFO plans to gladen five crore employees in the organised sector in india ahead of the festive season by announcing a one-percentage-point increase in the interest rate on provident fund savings for 2010-11 after approval from finance ministry. Labour minister has already approved it.

The higher rate of 9.5% was possible after planning the use of hidden surplus of Rs 1700 crore in its accounts by EPFO.

But there are some objections.

  1. Hidden surplus is nothing but unclaimed amount in the coffers of EPFO. Legally whether this can be distributed to the existing employees on rolls when the other claimants in the form of retired employees are living in india is a question. If any one goes to supreme court on PIL, this move may be questioned.
  2. The EPFO’s earnings for 2010-11 can only support an 8.5% payout with the present investments and revenues. With its corpus of Rs 1,70,000 crore, a 1% hike in the rate would need about Rs 1,700 crore. So the above surplus corpus may come for one year only. What happens to subsequent years?
  3. Employers running the PF trusts would have to match the higher PF rate. So it will be additional burden on them.
  4. The EPFO’s four fund managers, Reliance Capital, HSBC, SBI and ICICI Prudential, have cautioned that for sustaining an income of even 8.5% , its restrictive investment avenues are to be broadened which is not accepted so far. Only debt investment was agreed and no equity or other risker mode. So how EPFO manage the show and it will be another subsidy from Govt in the offing in the long run. If benefit is given once, it cannot be taken back which is politically sensitive and dangerous.
  5. Any increase in interes for EPF should coincide with Govt’s own scheme of PPF, Monthly income scheme , NSC , Govt pension fund etc. which are all serving for the benefit of employee cadre.

Let the finance Ministry thinks on these lines and then vet the same.

C. R. Venkata Ramani



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