EPF subscribers need not worry

EPFO trustees likely to fix rate of return at 8.5%

PTI | August 27, 2010



For the sixth year in a row, over 4.7 crore subscribers of retirement fund manager EPFO are likely to get 8.5 per cent interest on their deposits in the current fiscal.

"EPFO's apex decision-making body, the Central Board of Trustees (CBT), is likely to fix 8.5 per cent interest for subscribers at its meeting scheduled for September 10," a source said.

He said that maintaining 8.5 per cent rate of return for depositors is expected to leave a surplus of Rs 15.26 crore with EPFO. The organisation has been giving 8.5 per cent rate of return to the subscribers since 2005-06.

In April, the trustees of the Employees' Provident Fund Organisation's (EPFO) had deferred a decision on rate of return for its subscribers for 2010-11.

Some trustees had reservations against fixing interest rate on the basis of income and interest payout projections for current fiscal by EPFO official. They had demanded a comparative analysis of what was projected and the actual interest payout and liabilities in the past years.

The analysis indicated that in the past three financial years, the actual deficit remained higher than the projected.

EPFO invests in central and state government securties as well as in public sector undertakings and financial institutions.

In 2009-10, EPFO projected that there would a surplus of Rs 6.4 crore on maintaining 8.5 per cent interest rate. But it turned out to be a deficit of Rs 291.08 crore.

Similarly, for 2008-09, a deficit of Rs 139.25 crore was estimated for maintaining interest rate at 8.5 per cent which amounted to Rs 157.62 crore. In 2007-08, for providing at return of 8.5 per cent, the estimated shortfall was Rs 263.78 which again went up to Rs 499.45 after interest payouts.

The employees' representatives demanded at the last meeting that the rate of return on provident fund deposits be raised to 9.5-10.5 per cent from 8.5 per cent.

The EPFO's key advisory body, the Finance and Investment Committee (FIC), had recommended 8.5 per cent interest rate for 2010-11 at a meeting held on February 26 this year.

The FIC recommendations are usually accepted by the CBT.

The committee had said that maintaining 8.5 per cent interest rate would leave a surplus of Rs 15.26 crore. The EPFO has estimated an income of Rs 15,036 crore in 2010-11.

FIC had also indicated that increasing the rate to 8.75 per cent for the next fiscal would result in a huge deficit of Rs 426.53 crore and 9 per cent return would result in a deficit of over Rs 868 crore.

The retirement fund manager had maintained an interest rate of 9.5 per cent for three consecutive financial years between 2002 and 2005.

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