EPFO: Provident fund contribution to stay at 12 per cent

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Published: May 28, 2017 5:10:44 AM

The proposal to cut employers’ contribution saw protests from states as well as workers’ and employers’ representatives.

Central Board of Trustees, CBT, EPFO, EPF, provident fund, EPF benefits, EDLI handling fee, AK Padmanabhan, EPFO’s equity exposure, stock marketExposure to stock market increased to 15% from 10%

The Central Board of Trustees (CBT), the highest decision-making body of the employees’ provident fund organisation (EPFO), on Saturday rejected the government’s proposal of pruning employers’ contribution to the employees’ provident fund (EPF) to 10% from 12% at present, even as it gave the retirement fund body its go-ahead for enhancing its exposure to the stock market to 15% of the incremental deposits from 10% now. Sources present in the CBT meeting said the proposal of reducing employers’ contribution saw vehement protests from the states, as well as workers’ and employers’ representatives, leaving the Centre with no option but to withdraw the proposal.

Under the present law, it is mandatory for units employing 20 or more persons and earning up to Rs 15,000 a month to provide EPF benefits to workers. While employees contribute 12% of the basic pay to EPF, the employer  contributes 8.33% towards the employee’s pension scheme and 3.67% to the EPF itself. Employees also make matching 12% contribution. Additionally, employers also pay 0.5% towards EDLI, 0.65% as EPF administrative charges and 0.01% as EDLI handling fee.

The Centre had mooted the idea of pruning contribution to ensure that the take-home pay of employees increases and also to promote formal employment. But the employees’, as well as employers’ representatives, argued that lowering the contribution is not in the interest of the workers and should be done away with.

“The proposal to lower the employer’s contribution was rejected by the states and by the employers’ and employees’ organisations. As such, the Centre has dropped the proposal,” CITU president AK Padmanabhan told FE. BMS general secretary Brijsh Upadhyay also said the proposal was opposed by all as a “direct attack on the workers’ rights”.

The other proposal, increasing EPFO’s equity exposure in the stock market, has been approved, Padmanabhan said, adding that CITU had, however, objected to the proposal. Though there were no representatives present, AITUC also sent its letter of resentment.

Breaking away from its past practice of investing subscribers’ deposits mainly in government securities and corporate bonds, the EPFO has since 2015-16 started investing in exchange traded funds (ETFs) to diversify its portfolio and optimise returns. As per the investment pattern notified in 2015, the EPFO can invest up to 15% of its incremental deposits, estimated at Rs 1.4 lakh crore per annum, in the stock market.

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In the first two years, it has invested around Rs 19,000 crore, through exchange traded funds (ETFs), which has yielded a little over 12% returns. The EPFO is keen on increasing its investments in the equity market since returns from such investments are better than the traditional investments in government securities. with the current bull run in the stock market, the returns are expected to be better in the current fiscal.

The EPFO is under tremendous pressure to maximise returns from its investments. Depending on its return on investments, the EPFO pays its subscribers interest on their deposits. Sensing that it would be left with only a meagre surplus amount, the retirement fund body pruned the interest rate on provident fund deposits for its subscribers to 8.65 % for 2016-17, the lowest in four years.

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