EPFO interest rate 9.5% for 2010-2011

Employees' Provident Fund Organisation (EPFO) on Wednesday raised the interest rate on retirement benefits by a full percentage point to 9.5% for 2010-11 from 8.5% for the previous year. This move will benefit 4.70 crore organised sector workers. Corporates which run their own PF trusts will also have to match the new rates.

In fact, while the official interest rate is 9.5%, the actual rate of return works out to 13.8% (assuming investment of70,000 for the year in the instrument). That's because tax is saved both on the principal invested as well as the interest, translating into a very healthy return post tax, which is almost double that provided by fixed deposits (see graphic).

Wednesday's increase took the EPF interest rate to a five-year high and was made possible due to the surprise discovery of nearly1,700 crore in the suspense account -- meant for unclaimed PF money. The windfall was discovered after the central board of trustees last year ordered a review of all EPF accounts since 1952.

The decision of the board of trustees, headed by labour minister Mallikarjun Kharge, to hike the interest rate will be forwarded to the finance ministry for its notification. The 9.5% interest rate will result in an additional outgo of1,600 crore, which will be used from the surplus of1,731 crore in the interest suspense account of EPFO.

Kharge told reporters that the EPFO trustees had decided not to invest in the stock markets and would continue to follow the existing investment pattern. "We had received a letter from the finance ministry asking for parking of a portion of EPFO funds in the stock market. We have received huge opposition from CBT members who oppose the idea of investing in stock markets," Kharge said.

The EPFO maintains a huge corpus of over300,000 crore, whereas all recognised PFs managed by it have accumulated funds to the tune of200,000 crore.

Deepankar Mukherjee, CITU national secretary who was part of the board decision, said this was a short-term measure but the government must ensure that workers get a higher interest given the fact that there is high inflation and funds are parked in government securities.

"The interest rate was as high as 12% not very long ago. It was brought down as the government felt inflation had come down substantially. Now that inflation is in double digits, it must announce an additional interest subsidy as stimulus," Mukherjee said.

Between 1989-90 and 2000, the rate of interest on PF was 12%. It was reduced to 11% in July 2000 and thereafter the slide began. The reason for fall in interest rates was overall fall in interest rates in banks and lower inflation.

Minister of state for labour Harish Rawat clarified that the raise of an additional 1% is just for this year. Next year, the earnings of EPFO will determine the rates. "We found a surplus of1,731 crore in the suspense account and we put that before the CBT to decide," the minister said.

In another important decision, the board of trustees decided to stop paying interest on "inoperative accounts", thus reducing the interest burden on account of those who use this fund as an investment destination. "The accounts which are not operated for 36 months will stop getting interest," he said.

D L Sachdev, AITUC national secretary, welcomed the decision, but said this was only a one-time security. "What the workers need is a long-term measure to be worked out and that is only possible with the government intervention," he added.

The EPFO decision will also increase the bill of many corporates which run their own PF trusts as they will have to match the new rates announced on Wednesday.

Source : https://timesofindia.indiatimes.com/business/india-business/Windfall-gain-EPF-interest-rate-hiked-to-95-for-10-11/articleshow/6562516.cms

Union Minister of Labour & Employment, Shri Mallikarjun Kharge Chaired the 190th Meeting of the Central Board of Trustees (EPF) in New Delhi
CBT decides to increase the rate of interest to be credited to EPF members’ accounts for the year 2010-11 to 9.5 percent

The 190th meeting of the Central Board of Trustees, EPF, which was the eighth regular meeting of the present Board, was convened in New Delhi today. Among the 22 agenda items placed before the Board, it considered a statutory item to recommend rate of interest for the year 2010-2011 for crediting to the subscribers account which was deferred by the Board in the last meeting. After detailed deliberations the Board recommended 9.5% as the rate of interest for the said year, from the surplus located in the interest suspense account.

The Board took two major policy decisions in the meeting. It approved closure of “inoperative accounts”. It was decided that such accounts would be closed from an appointed day and no interest would be credited to such accounts after 36 months of inoperation. This would entail closure of nearly 3 crore inoperative accounts with various EPFO offices leading to more efficient accounting in offices.

The Board recommended delinking of calculation of assurance benefit with the PF balances payable to family of employees who die while in service under the EDLI Scheme, 1976. It would be now calculated at 20 times the average monthly wages drawn by the deceased employee in preceding 12 months of service. The maximum benefit payable to the families of EPF subscribers on their death in service would be Rs. 1.30 lakh. This would benefit the families of employees who die in harness.

The Board also approved the process of appointment of new consultant for initiating appointment of new fund managers to manage EPFO portfolio after 31.03.2011.

The Board discussed the directions of Ministry of Finance on revised investment pattern to be followed by the CBT with regard to EPF corpus. The employees’ representatives were concerned about the safety & security of the funds which was primary consideration apart from the returns. Some of the employers’ representatives supported investment of some corpus in capital market. It was decided that the matter will be appropriately taken up with Ministry of Finance on the issue of guarantee of safety of capital and a minimum return.

The Board also discussed the report of the Expert Committee on comprehensive review of the Employees Pension Scheme 1995. The matter was deferred for further deliberation in future.

The Union Minister of Labour & Employment, Shri Mallikarjun Kharge chaired the 190th Meeting of the Central Board of Trustees (Employees’ Provident Fund). Shri Harish Rawat, Minister of State for Labour and Employment and Vice Chairman CBT, EPF, was also present. CBT discussed all 21 items placed before the board and decided to recommend the Rate of Interest to be credited o EPF members’ accounts for the year 2010-11 at 9.5 percent. Talking to the Media persons after the meeting Shri Mallikarjun Kharge said that the CBT want the PF money of the about 5 Crore workers to be safe and secure and invested in a manner to provide good return on their accounts. The rate of interest on EPF has been pegged at 8.5 % for the last five years from 2005-06 to 2009-10. Although the decision to provide 9.5 per cent interest rate would result in a deficit of about Rs 1,600 crore, the same would be made good by a surplus of Rs 1,731 crore in the interest account of the EPFO.

YSK/
(Release ID :65784)