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PF rates slashed to 7-Year Low of 8.5%

The proposed rate is 15 basis points lower than 8.65% announced for FY 2018-19. The finance ministry will have to vet the interest rate of 8.5% agreed upon by CBT before it is notified by the labour ministry.

ET Bureau|
Last Updated: Mar 06, 2020, 01.25 PM IST
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Decision to result in a surplus of over Rs 700 cr for the fund: Gangwar; interest income of EPFO in current year pegged at Rs 58,500 crore.
The Employees Provident Fund Organisation on Thursday lowered interest rate on provident fund deposits for 2019-20 to a seven-year low of 8.5% following a decline in its income.

The decision, taken at a meeting of the central board of trustees (CBT) of EPFO, will result in a surplus of more than Rs 700 crore for the fund, labour minister Santosh Gangwar said.

The proposed rate is 15 basis points lower than 8.65% announced for 2018-19. The finance ministry will have to vet the interest rate of 8.5% agreed upon by CBT before it is notified by the labour ministry.

ET had reported on February 28 that the labour ministry was mulling a 15 basis point reduction in interest rate on provident fund deposits for 2019-20.

The rate of interest is slightly higher than 8.45% recommended by the Finance Investment & Audit Committee of EPFO, KE Raghunathan, a member of the audit panel, told ET.

EPF

The interest income of EPFO in the current year is pegged at Rs 58,500 crore in addition to a notional income of Rs 2,500 crore from investments in exchange traded funds in 2016.

People aware of the estimates said there would have been a surplus of Rs 300 crore if 8.55% rate of interest on EPF was declared for this fiscal while the organisation would have seen a deficit if the existing 8.65% rate was retained.

The finance ministry has been nudging the labour ministry for declaring interest rates in line with its earnings with some cushion against pressure from unions to keep rates high. Some members of CBT — which is chaired by the labour minister and comprises representatives of employees, employers, central government and some states — opposed the decision to cut rates. “BMS (Bhartiya Mazdoor Sangh) representatives along with CBT members protested on this and demanded to maintain 8.65% rate,” the RSS-affiliate trade union said in a statement. “But due to non-availability of extra income generation, FIAC recommended for 8.5% only.”

CBT also recommended to extend the provision of minimum assurance benefit of Rs 2.5-3 lakh to the family of a member who dies while in service even if a member had worked in multiple establishments.
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