1. Mr Jaitley, workers still remain hostage to EPFO/ESI 10 months after budget promise

Mr Jaitley, workers still remain hostage to EPFO/ESI 10 months after budget promise

When finance minister Arun Jaitley spoke, in his budget, of both EPFO and ESI having hostages rather than clients, it is not clear if even he knew the extent of how bad things are.

By: | New Delhi | Updated: January 1, 2016 2:18 PM
EPFO

At even the lowered 0.85% of an employee’s salary, the EPFO ends up charging around 3.5% of monthly contributions which makes it the world’s most expensive mutual fund, more so when you consider that almost all the investments made are in government securities. (PTI)

When finance minister Arun Jaitley spoke, in his budget, of both EPFO and ESI having hostages rather than clients, it is not clear if even he knew the extent of how bad things are. A calculation by TV Mohandas Pai and Rajesh K Moorti shows that the overcharging by these two institutions is likely to be in the region of Rs 10,000 crore this year – and that’s after the EPFO reduced its administrative charges this year. Think of the savings for crores of low-paid workers if their monthly outgo was reduced and the headache for employees who, despite the finance minister’s budget promise, are still not free to move to other privately-run but government-approved/regulated schemes.

At even the lowered 0.85% of an employee’s salary, the EPFO ends up charging around 3.5% of monthly contributions which makes it the world’s most expensive mutual fund, more so when you consider that almost all the investments made are in government securities. While there is a case for dramatically reducing the administration charge, keep in mind the costs of the rival New Pension Scheme (NPS) and the fact that Sebi is engaged in further reducing costs of mutual funds by moving to Aadhaar-based authentication and NPCIL electronic payments. Surely, EPFO’s bloated staff costs cannot be passed on to hapless hostages – even the Public Accounts Committee has commented upon this in its latest report. While existing EPFO subscribers still can’t move to the NPS where returns are significantly higher – in one of the amendments proposed by the EPFO, even those moving to NPS were expected to continue to pay the administration charges to the EPFO! – what is more shocking is that the tax treatment for NPS has still not been equalized with that of the EPFO; those in the EPFO pay no tax on withdrawal while those in the NPS still have to. In the case of the EDLI portion of the EPFO, no changes have been proposed either to cut charges to more reasonable levels – if an individual is earning Rs 10,000, his survivors will get Rs 2 lakh under EDLI – but he has to pay Rs 600 per year for this (0.5% of salary) as compared to the PM Jeevan Jyoti Bima Yojana which also promises Rs 2 lakh on death but for an annual premium of Rs 330.

In the case of the ESI, Pai/Moorti point out the surplus collections over the years have resulted in a reserve fund of Rs 45,000 crore, a fourth of which is now being used to fund medical colleges – ESI has no mandate for this, why not just lower rates to more reasonable rates? And what happened to the FM’s promise that employees would be allowed to opt out of ESI in favour of some other IRDA-approved insurance product?

Tags: EPFO
  1. A
    Ajay
    Jan 17, 2016 at 5:43 am
    Administration charges are not paid by employer for financing axtravagence and inefficiencies of these rotten organisation. Administration charge increase the cost of business, do you know dude. Administration charges should be abolished.
    Reply
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      Ajay
      Jan 17, 2016 at 5:38 am
      It is completely correct. I have seen closely as member of these two organisation. Employees of these guttersnipe and do not even ready to talk. Whatever they charged from employer is for welfare of employees and for nt welfare guttersnipe employees and officer of these organisation. If they are confident of their service than why not compeion from other organisations and private player. Choosing the organii should lie with neither these rotten organisations nor with emploer BT only with beneficiary of these two I.e. member
      Reply
      1. A
        Ajay
        Jan 17, 2016 at 5:45 am
        Why not member should decide from which organisation they have to take insurance
        Reply
        1. A
          Ajay
          Jan 17, 2016 at 5:46 am
          Why not merge these organisation. Do you know how much problem industry face. That is why industry has to depend on contract employees and increasingly complete automation
          Reply
          1. M
            Mavala
            Jan 4, 2016 at 2:33 pm
            foolish article
            Reply
            1. D
              Deepak Mehta
              Jan 1, 2016 at 8:14 pm
              He does not bother about such nitty gritty/annoying details so long as he can spout banalities on the tube.The sooner Modi gets rid of him the sooner tax department terrorists will start to cower and desist from rent seeking... this, sadly , has shot up under this maximum interference Raj of NAMO
              Reply
              1. S
                Shariq
                Jan 1, 2016 at 8:37 pm
                The columnist as well as Mohandas Pai/Moorti have either not studied EPFO or if they have studied then they have not understood it properly. In my opinion social security provided by EPFO is one of the best in the world.
                Reply
                1. S
                  Shariq
                  Jan 1, 2016 at 8:47 pm
                  In the Pension scheme of EPFO if the member has worked even for a "SINGLE" day - the widow 2 kids get pension immediately. The widow gets pension lifetime & the kids get it till they attain the age of 25. The columnist should reply that whether he can give any example from around the world where such social security is thought of ???
                  Reply
                  1. P
                    Prashant Tayal
                    Jan 2, 2016 at 7:26 pm
                    Govt. needs to let employees chose their preferred product instead of enforcing mandates. Whether good or bad is a different issue which can be tested by opening the PF sector to pvt compeion.
                    Reply
                    1. R
                      Rajesh
                      Jan 2, 2016 at 8:44 am
                      Which time me apply online pf withdrawal fund
                      Reply
                      1. S
                        sachi
                        Jan 2, 2016 at 4:51 am
                        What nonsense writers do u have financial express?. Is this author not aware that the employees are NOT charged a dime towards administrative expenses? . Entire contribution of employees is remitted in their PF. Any adm charges is to be meted out by the employer. The ertion that the employee has to s out 600 rupees for EDLI benefit is nothing but a WHITE LIE. This makes me conclude that this author is either plain stupid or has an agenda in maligning EPFO.
                        Reply
                        1. S
                          Saurabh
                          Jan 8, 2016 at 11:01 am
                          I did'nt know Mr Pai is so foolish. Employees don't pay 0.85% administrative charge. They get EDLI benefit free unlike PMJJY (Both these are paid by employers). And employers are not angels. A compliance machinery is required to enforce the Act. Otherwise forget about any benefit to employees higher or lower. That justifies administrative charges. And by the way since when NPS has begun giving higher returns? Is there any honest analyses of there annualised return since inception?
                          Reply
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