EPFO Interest: Labour Ministry rejects move to lower rate
The labour ministry has rejected the finance ministry’s request to
reduce the 8.65 per cent interest rate offered in 2018-19 by the
Employee Provident Fund Organisation, the government owned pension fund
manager, in a move that should bring cheer to 46 million subscribers
whose funds are managed by EPFO.To get more economy news,
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Government officials familiar with the matter said the labour ministry
is of the view that EPFO has sufficient surplus of over Rs 3,150 crore,
mainly earned from investments in exchange traded funds (ETFs).
EPFO interest rate is determined by the organisation’s Central Board of
Trustees (CBT), which does so after assessing the annual returns on the
investments. It is the duty of EPFO to pass on the rightful share of the
subscribers, the government officials cited in the first instance added
on condition of anonymity. EPFO does not take any money from the
consolidated fund of the Government of India, and is not obliged to
follow the finance ministry’s suggestions, they added.
CBT is chaired by the labour minister and has representation of central
and state government officials, trade unions and industry bodies.
“The finance ministry is worried that EPFO is offering significantly
higher returns compared to similar funds managed by the central
government. Instead of asking for the EPF interest rate to be slashed,
it should make its fund management system more efficient,” said one of
The finance ministry on Tuesday slashed interest rate on General
Provident Fund (GPF) and other similar funds to 7.9 per cent for the
quarter ending September 30 as compared to 8 per cent offered on pension
funds of government employees the previous quarter.
Last month, the finance ministry wrote to the labour ministry to review
its decision to offer 8.65 per cent interest rate on two grounds; one
pertained to the EPFO’s decision to invest in financially troubled
Infrastructure Leasing & Financial Services (IL&FS) group
companies; the other was appropriation of surplus of the previous year.
HT reported the matter on June 20.
“The ministry of Labour and Employment is therefore advised to consider a
rate of interest for FY 2018-19 which does not fully utilise the
surplus of the previous year and leaves a reasonably higher surplus in
the account undistributed,” the finance ministry wrote to the labour
secretary last month.
The labour ministry replied to the finance ministry that the interest
rate was fixed after keeping a reasonable surplus, which is more than Rs
3,150 crore, a second official said.
The official said that a large part of this surplus came as returns from
the investments it has made in ETFs over the past few years. “ETFs,
based on Sensex 30 and Nifty 50, are relatively safe, with lower risk,
and EPFO invests a part of its funds in such instruments. It appears
that the mention of this surplus amount was missed when the matter was
initially communicated to the finance ministry. Now, a full brief has
been sent to the finance ministry,” this official added.