Government mulls vesting such a role with separate entity to avoid conflict of interest.
The government is considering divesting the Employees’ Provident Fund Organisation (EPFO) of its regulatory role and vesting such functions with a separate entity. The idea is to avoid the conflict of interest emanating from EPFO being the country’s largest provident fund provider and also the regulator for such entities.
As per official sources, the labour ministry has already started working on the proposed bifurcation following a suggestion from the finance ministry. However, any changes in the existing provisions require Parliament approval.
Currently, EPFO acts as an enforcement agency to oversee implementation of Employees Provident Fund & Miscellaneous Provisions Act, 1952, and as a service provider for around six crore covered beneficiaries throughout the country. Employees earning less than Rs 15,000 per month in firms employing 20 persons or above are now under mandatory EPF cover. The EPFO enjoys punity powers over the firms that don’t comply with the Act. Arguing that EPFO’s dual role causes conflict of interest, the finance ministry suggested that the bifurcation process should be carried out after identifying and separating the activities those are regulatory in nature and those of a PF provider within the EPFO.
While the provident fund of private establishments, organisations and PSUs largely comes under the EPFO, respective trusts manage the retirement fund for exempted and excluded categories. Organisations under the exempted category are allowed to maintain a trust created by that organisation. Under the excluded category, a particular industry’s provident fund is maintained and regulated by that particular ministry. Both the categories are not regulated.
The department of financial services also expressed the view that there was a need to regulate the unregulated provident fund trusts, as good governance can optimise pension outcomes for subscribers of a provident fund trust.
Government sources said a consensus has been developed in various government departments that EPFO should act as a sole regulator for all provident fund trusts, including those managed by the exempted, excluded and other categories of organisations or establishments.
In a report submitted to the Lok Sabha, a standing committee felt the need for establishing a regulatory mechanism for various PF trusts.