EPF Rate Slashed From 8.5% To 8.1% Lowest In Over 4 Decades – Free PDF Download

What is EPF?

• Employees’ Provident Fund (EPF) is a retirement benefit scheme maintained by the Employees’ Provident Fund Organization (EPFO).
• The employee and the employer contribute to the EPF scheme on monthly basis in equal proportions of 12% of the basic salary and dearness allowance.
• Out of the employer’s contribution, 33% is directed towards the Employee Pension Scheme.

What has happened?

• The Employees Provident Fund Organisation has slashed interest rate on provident fund deposits to 8.1% for 2021-22 from 8.5% credited in 2020-21 and 2019-20.
• This is the lowest in more than four decades.
• EPFO had credited 8.0% as interest rate in 1977-78.
• Since then, it has been either 8.25% or more.

• The retirement fund body had credited 8.5% in 2019-20 and 2020-21 while it was 8.65% in 2018-19, 55% in 2017-18, 8.65% in 2016-17 and 8.8% in 2015-16.

How the rate was decided?

• The decision was taken at the EPFO’s board meeting in Guwahati on Saturday.
• The central board of trustees of EPFO or CBT is a tripartite body involving government, workers and employers’ representatives and the decision of CBT is binding on EPFO.
• It is headed by the labour minister.
• The EPFO’s Central Board of Trustees (CBT), chaired by Labour and Employment Minister Bhupender Yadav, recommended 8.1% at its meeting in Guwahati on Saturday.
• The interest rate of 8.1% has been declared based on EPFO’s estimated income for the year at Rs 76,768 crore and this will leave the retirement fund body with a surplus of Rs 450 crore.

Why not keeping the rate at 8.5%?

• “Keeping in mind the global situation and the equity market, maintaining a balance of investment with social security is our priority. We can’t opt for high risk instruments,” labour minister Bhupender Yadav said.
• “We are not market makers but in the market for stability and that’s why the board has recommended the interest rate of 8.1% which is as per our estimate,” the minister added.
• “This year the earning has been about Rs 76,000 crore out of which Rs 5,800 crore is from ETFs which we diluted before the war.
• This has helped us get some decent return.
• While other funds have given 6.8%-7%, the interest rate of 8.1% is decent and should be appreciated,” KE Raghunathan, a member of the CBT said.
• Though EPFO’s corpus has shot up from Rs 8.29 lakh crore in 2020-21 to Rs 9.4 lakh crore in 2021-22, maintaining an interest rate of 8.5% would have left EPFO with a deficit of Rs 3,500 crore.

impact

• Move is expected to hit the earnings of over sixty million EPFO subscribers.
• The rate will have to be ratified by the Finance Ministry before it is notified and credited to members’ accounts.
• The interest income gets credited into the subscribers’ account after being notified, generally around Diwali.
• Finance ministry has been nudging the labour ministry to lower the interest rate on provident deposits and to bring them at par with other small saving schemes.

Criticism

• “The falling interest rate is a big disappointment to millions of EPFO subscribers.
• Total economy is in distress and the fall in interest rate is a reflection of that,” AK Padmanabhan, a member of the central board of trustees of EPFO, said.
• The cut in the EPF rate, at a time when inflation is resurging, attracted criticism from the central trade union representatives on the board who called for the 8.5% return to be retained.
• Employee representatives had also opposed the last rate cut on EPF savings from 8.65% in 2018-19 to 8.5% in 2019-20.

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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