Employees’ Provident Fund Organisation (EPFO) is becoming more technology-driven and will invest 5% of its incremental corpus in equities because of competition from the National Pension System(NPS). And to ensure subscribers do not use the EPF as a savings bank account, it has put a cap on the amount of final withdrawal pre-retirement. K K Jalan, Central Provident Fund Commissioner, in an interview with Surya Sarathi Ray and Saikat Neogi says, for the first time since 1976 an actuarial evaluation of Employee’s Deposit Linked Insurance Scheme (EDLI) has found that the collection is more than the outgo, which would enable EPFO to enhance the quantum of insurance to 30 times the monthly wage as against 24 times now to the insured’s nominated beneficiary in the event of death due to natural causes, illness or accident. Edited excerpts:
What are the various measures that you plan to undertake so that subscribers of EPF do not switch to NPS?
We in EPFO are not greatly concerned about subscribers switching to NPS. We are concerned about better implementation of EPF, EPS and Employee’s Deposit Linked Insurance Scheme (EDLI) schemes. These must improve, must be technology-driven and to a greater extent, should be online. I am in favour of competition if it is fair and just. This will encourage our employees to perform better. There are two things which have been raised: perhaps NPS is giving better returns and it is giving better services. I would like to assure you that EPFO services are getting better and with the introduction of universal account number (UAN) and PF online, we will be able to match the services with the best. Secondly, on the returns front, if we compare the returns in previous year, we have not done bad at all.
If you see the NPS returns vis-a-vis returns on EPF of 2009-2014, leaving aside the equity part which has started rising in the last one year, you would find that EPFO subscribers have gained 20% more in EPF as compared with NPS. Fortunately, the Central Board has also decided to invest in equity and the return gap due to equity will also be reduced. While EPF is exempt-exempt-exempt in taxation, NPS is exempt-exempt-tax, which makes a major difference.
Will investing just 5% of the incremental corpus in equities be enough to generate higher returns in the long-term?
We are starting with 5%, and we have a window available where we can go up to 15%. If we do better with 5%, then we will definitely go up to 15%. We do not have a deadline to reach the 15% level. We have taken a decision to invest in equities after a long time, and when one takes a decision for the first time, it is quite natural to experience and evaluate and then take the next phase of the decision.
What are the various measures you are taking to improve services and give better returns to subscribers?
As far as services are concerned, we are investing more in technology. We have three major stakeholders—employers, employees and pensioners. Employers can register themselves online, deposit their contribution online and they do not have to send any hard copy. For employees, we are capturing the data online by making UAN mandatory. Pensioners get their money on the first working day of the month in their bank account. We have lot of improvements to make such as centralising the data base, centralising the pension services and other improvements which are in the offing. Our services are reasonably good now, and people are not showing any dissatisfaction with our services. On returns, we will strive to give better returns by investing the money at the earliest after we receive it.
We must maintain our accounts properly and invest the money in proper instruments. Most importantly, the stability and security of the funds is very important. So, risk-taking cannot be wild as far as pension fund is concerned. EPFO has a history of more than six decades and we are investing the money in less than 24 hours. We have to get more instruments to invest and the markets should also have an appetite to absorb that much money. Our quantum of funds is increasing and we need to be aware of the investment horizon. That is a new challenge. So, we will have to plan and execute the investments with due diligence.
Does EPFO have any plan to enhance the insurance benefits under the EDLI?
For the first time after 1976, an actuarial evaluation of EDLI has been done and the report does indicate that we can give more benefit to EDLI subscribers. The report says that our collection is more than the outgo; so, we can think of better returns to subscribers. We will discuss, deliberate and then decide on the quantum of enhancement of the insurance. There are various numbers—it may be 30 times the monthly wage as against 24 times now. There are various options that the actuarial have given to us and we are evaluating all of them.
Initially, the equity investment will be done through the ETF route. Which are the fund houses which will look into the corpus?
We are still in a deciding phase. The Finance Investment Audit Committee has met and they decided about the SBI Mutual Fund. However, the final decision is yet to be taken. We are quite comfortable with SBI and have association with them for the past 40-50 years. They presently handle almost 35% of our portfolio. Also, SBI has handled 100% of our portfolio for more than 20 years and they are the sole banker for the EPFO. Moreover, out of the four portfolio managers, the returns of SBI have been the best.
Employees will not be able to withdraw more than 75% of their accumulated provident fund before reaching the retirement age of 58 years. Do you think measures like putting a penalty on premature withdrawal is a better idea?
No, we do not want to put any penalty on premature withdrawal. It is a provident fund and not savings bank account and full withdrawal before retirement goes against the tenets of a provident fund. Earlier, our services were not good and people had fears as to where the money was going. That was a challenge. Now, we have taken care of that challenge and can instil confidence in subscribers that their money is safe. So, people can treat their provident fund account the way it should be treated. If one withdraws the full amount every time, then where is the use of UAN? No country in world allows full withdrawal before retirement. Even the media should highlight that point that full withdrawal should not be allowed.
What is the level of deficit in EPS as of now?
The latest actuarial calculation as on March 31, 2014, the deficit has come down to R7,000 crore in EPS. Even this deficit is not fully accurate as we do not have full data of the employees. Once we get full data, then a much better position will emerge. If we are successful in full implementation of the UAN, then we can get the accurate data.
How do you plan to address the issue of unclaimed amount with EPFO?
Of the total collection of around, R10 lakh crore, the unclaimed amount will be R30,000 crore. So, it is not an alarming figure. There was a rule in EPFO, where one had to deposit six-months money in advance and take the EPF code. So, we had six-months money in an unknown person’s name; so, naturally, that money will become unclaimed.
Some of the unclaimed money is because of some rules in the past. As on July 10, 2015, about 2.68 crore accounts have less than Rs 500, including interest, and the total amount in such accounts close to Rs 800 crore. Of the total 15 crore account holders, there are 8.5 crore inoperative accounts and of that, 2.68 crore have less than Rs 500 and the average amount per account is Rs 300. Perhaps we will have to think of such accounts. In the past, the Central Board of Trustees did instruct us to amalgamate such accounts.