No Increase in Pension Fund Equity Investments Without Capital Protection: Labour Union

Opposition by trade unions scuttled a proposal to increase the amount of employee pension fund money to be invested in equities. As a result, the proposal was not discussed at a meeting of the Central Board of Trustees (CBT) held today. The CBT administers the Employee Provident Fund Organisation (EPFO), a state-run retirement fund manager.

“The performance of EPFO in equities was discussed at the CBT. A proposal to increase further investments will be devised after further evaluating the returns from investments,” Labour and Employment Minister Bandaru Dattatreya said at a press conference after the meeting.

In May, Dattatreya had announced at a press conference that the government will seek to increase the participation of EPFO funds in equities after taking approval from the CBT.

But not all trade unions have supported that move. After today's meeting, Virjesh Upadhyay, an employee representative in the CBT told journalists, “We want the government to assure capital protection before allowing further participation in equities. The unions will oppose any move from the government to hike investments.” Upadhyay is the All India General Secretary of the Bhartiya Mazdur Sangh, a right-wing affiliated trade union.

Constitutionally, the CBT is responsible for administering the EPF corpus. The 43-member body takes decisions on the functioning of the EPFO by vote. Chaired by the labour minister, the CBT has 10 employee representatives, 10 employer representatives and rest are state and central government appointees.

In March 2015, the Finance Ministry had permitted the EPFO to invest up to 15 percent of its funds in equity and equity-related schemes. At the time the CBT preferred to invest just 5 percent, amounting to Rs 6,577 crore, in exchange traded funds. The remaining 95 percent of the fund's corpus is invested in low risk, assured return investments such as government bonds.

EPFO's Equity Investments get Another Hand

While the CBT did not progress in enhancing the pension fund's investment in equities, it did decide to appoint one more fund manager. UTI Mutual Fund will be the second asset management company, after SBI Mutual Funds, to steer the fund's equity investments.

Since the investment corpus has not been increased, the two will combined manage the 5 percent of the EPFO corpus earmarked for equities.

Central Provident Fund Commissioner, VP Joy said in an interview to BloombergQuint, “UTI Mutual Fund will manage a portion of the already permitted corpus. The idea is to maximise returns for employees and bring in some competition.”

The EPFO's investments in equities have appreciated by 7.4 percent in the ten months since August 2015 and have yielded a dividend return of 1.7 percent up to April 30, 2016.