EPFO Retains FY21 Interest Rate At 8.5%

EPFO has kept the rate of interest on provident fund deposits for the ongoing fiscal same as last year.

The Employees' Provident Fund Organisation, at its central board of trustees meeting—chaired by Labour and Employment Minister Santosh Kumar Gangwar—in Srinagar, Thursday, retained the interest rate at 8.5% for the financial year ending March 2021, according to a media statement. In FY19, the interest rate stood at 8.65%.

“For FY2021, EPFO decided to liquidate investment in equity, and the interest rate recommended is a result of combined income from interest received from debt investment as well as income realised from equity investment,” the statement said.

There is no over-drawl on EPFO corpus due to this income distribution, the Labour Ministry said, adding the provident fund body has consistently followed a conservative approach towards its investment.

The decision comes at a time EPFO is expecting a 5% year-on-year decline in total contributions, across the three schemes administered by it, at about Rs 1.62 lakh crore in FY21. The collections are about 11% lower than budget estimates presented in March last year.

According to KE Raghunathan, an EPFO board member representing employers, the organisation will be left with a surplus of Rs 250-300 crore on its income after crediting an interest rate of 8.5% in FY21.

“The income for distribution of interest rate stood at Rs 70,500 crore. The exchange-traded funds purchased in the first two quarters of 2017 are being liquidated, which has led to an income of over Rs 4,000 crore,” Raghunathan said. “Realisations from equity have been robust and debt investments have also assured decent returns.” EPFO is allowed to invest up to 15% of its yearly deposits in ETFs.

The interest rate, much higher than the returns on other small saving schemes, will require approval of the Finance Ministry before being notified. It will be credited to roughly 17 crore EPF accounts.

Early Withdrawal Of Pension

EPFO board members also discussed a proposal to curb early withdrawal of pension contribution by formal sector workers as part of a new scheme that will be notified under the labour codes. But no decision was taken.

According to the proposal, members may be allowed to withdraw benefit from pension schemes only after two continuous years of exit from employment. At present, withdrawal of contribution from the Employees' Pension Scheme, administered by EPFO, can be done after two months of exiting from a job.

“The matter was deferred as it will be further discussed by EPFO board. Employer representatives moved a proposal to reduce the withdrawal period from two years to one year,” Raghunathan said.

Another EPFO board member on the condition of anonymity said workers' representatives have opposed the move to impose new restrictions on pension withdrawal.