With the finance ministry pressing for a reduction in the interest rate being paid by the Employees’ Provident Fund Organisation (EPFO), labour minister Bandaru Dattatreya has written to finance minister Arun Jaitley, requesting him to retain the proposed EPFO deposit rate at 8.65% for 2016-17. “We have received communications from the finance ministry on reducing the rate on EPFO deposits for 2016-17. Our minister has reverted, requesting them to review their suggestion,” said a senior labour ministry official.
It is estimated that EPFO would be left with a surplus of around Rs 200 crore after paying out interest at 8.65% from its projected income of Rs 39,084 crore in 2016-17. Thus, the government would not have to pay anything from its coffers, the official added.
In December last year, the central board of trustees (CBT), the highest decision-making body of EPFO, had recommended 8.65% interest rate for EPFO’s 17 crore subscribers for 2016-17 as against 8.8% in the previous fiscal. EPFO would have left with a deficit of Rs 383 crore had it retained 8.8% rate of interest on EPF deposits for 2016-17.
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The finance ministry’s apprehensions are not unfounded as EPFO’s surplus is getting squeezed each year due to falling interest rate regime. The retirement fund body was left with just Rs 409 crore surplus after providing 8.8% returns for 2015-16, compared with Rs 1,640 crore a year earlier.
Though any decision on interest payouts are taken by the CBT, headed by the labour ministry; the finance ministry notifies the final rates.
Overturning the CBT’s decision to pay 8.8% interest for 2015-16, the finance ministry had lowered it to 8.7%, though it had to roll back the decision and retain the rate at 8.8% following vociferous protests from trade unions.