Column PF’s bittersweet month

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It’s been a bittersweet month for the Employee Provident Fund Organisation (EPFO). On one hand it held a spectacularly successful competitive bidding for fund management that gives them good names at an unbeatable price of 0.01% of assets. On the other hand the amendment to include employers with more than ten employees (the previous limit was twenty) under PF coverage represents a tragic triumph of hope over experience and has the potential to fatally undermine EPFO’s already questionable financial sustainability.

Let’s talk about the fund management issue first. Upset with its earlier fund manager, the EFPO put up the management of its fund for competitive auction. Given tight investment guidelines (mostly sovereign but some corporate debt), fund managers quoted various fees but the final four will be paid 1/100th of 1% of incremental assets. This is a bargain and has huge implications for the proposed national pension scheme (NPS). There is much unfinished agenda (individual account asset allocation flexibility, linking and capping the employee interest credit to earnings, etc) but the auction and free choice of fund managers (unlike earlier unstated restrictions on private managers) represent policy innovation and change at its best for which the EPFO and its leadership must receive credit.