EPF Interest Retained At 8.5% for 6 Crore EPFO Members – Free PDF Download

What has happened?

• The Central Board of Trustees of the retirement fund body Employees’ Provident Fund Organisation (EPFO),
• Recommended that the interest rate for the financial year 2020-21be retained at 8.5%.
• The recommendation was made keeping the returns on equity investments in view.
• The next step, however, may face a hurdle as it needs to be ratified by the Finance Ministry,
• Which has been nudging the EPFO to reduce the interest rate in line with overall interest rate scenario.

How this rate 8.5%?

• For FY2021, the EPFO has 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 Labour Ministry said in a statement.
• “This has enabled EPFO to provide higher return to its subscribers and still allowing EPFO with a healthy surplus to act as cushion for providing higher return in future also.
• There is no over-drawl on EPFO corpus due to this income distribution,” it said.

How much EPFO earned from these investments?

• The interest rate is learnt to have been decided on an income of Rs 70,000 crore from debt and equity investments of the EPFO and Is likely to leave a surplus of about Rs 200-300 crore.

Interest rates in previous years?

• The EPFO had provided 65% interest rate to its subscribers in 2016-17 and 8.55% in 2017-18.
• The rate of interest was slightly higher at 8.80% in 2015-16.
• It had given 75% rate of interest in 2013-14 as well as2014-15, higher than 8.50% for 2012-13.
• The EPFO had provided 8.25% rate of interest onprovident fund in 2011-12.

Why there are concerns?

• The Finance Ministry has been nudging the EPFO to reduce the rate to a sub-8% level in line with the overall interest rate scenario.
• EPFO rate continues to be the highest among other savings instruments.
• Small savings rates range from 4.0% to 7.6%, and have been kept unchanged for the January-March quarter.

• The Finance Ministry had questioned 2019-20 interest rate and the 2018-19 interest rate of 65% as well, besides the EPFO’s exposure to IL&FS and
• similar risky entities.
• In March last year, the CBT had recommended an interest rate of 8.5% for 2019-20.
• The retirement fund body saw high withdrawals and lower contributions in the aftermath of the Covid-19 pandemic.
• Until December 31, the EPFO had settled 56.79 lakh claims worth Rs 14,310.21 crore provided under the advance facility.
• A total 197.91 lakh final settlement, death, insurance, and advance claims worth Rs 73,288 crore were settled during April-December 2020.

Conclusion

• The recommended interest rate for FY21 will now need to be ratified by the Finance Ministry, following which it will be notified by the Labour Ministry.

Q) If the interest rate is decreased in an economy, it will?

1. Decrease the consumption expenditure in the economy
2. Increase the tax collection of the Government
3. Increase the investment expenditure in the economy
4. Increase the total savings in the economy

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