EPFO to stick to 8.65% rate for FY19

The labour ministry and Employees Provident Fund Organisation (EPFO) have decided to stick to the decided 8.65% return rate. This rate was proposed by the retirement savings body’s board of trustees. It may be noted that the retirement
fund body decided earlier this year to provide 8.65% interest, 10 basis points higher than the 8.55% given in 2017-18, on the provident fund deposit for the current financial year FY19. 

The EPF interest rate was at a five-year low of 8.55% in the 2017-18 fiscal, and the 8.65% proposal, would have benefited the roughly 45 million subscribers to the retirement savings account. 

However, the finance ministry objected to the proposal for increasing the payout to 8.65% from 8.55%. It asked the labour ministry and EPFO to review the hike. The objection came at a time when banks were already refusing to lower lending rates due to the high cost of funds, which in turn is linked to their inability to increase deposit rates. Banks argued that small savings schemes like public provident fund (PPF) and EPFO offer higher interest rates and a reduction in deposit rates which will impact their fund-raising ability.

According to a ToI report, EPFO has decided to stick with the revised rate. Source cited in the report mentioned that despite the higher payout this financial year, EPFO will still be left with a surplus of over Rs 150 crore. Sources further revealed that the impact of the falling rates on the fund’s earnings had already been factored in ever since the financial year was over.

The labour ministry and EPFO cited adequate reserves and the Modi government’s pre-poll backing as the reasons to stick with the revised rate. The national daily report stated that even labour unions, whose representatives are part of EPFO board as trustees, are unwilling to go back to the previous rate. Sources told the publication that the labour ministry will formally respond to the finance ministry’s objections in a few days.

It is worth mentioning here that the finance ministry demanded the EPFO cuts the 8.65 per cent annual return it was planning to offer about 85 million member workers. As per officials, the biggest concern is that the high return would hurt the economy by reducing banks' ability to lend at attractive rates.

source