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EPFO cuts interest rate to 8.1% for 2021-22, lowest in 43 years

Last fiscal, this interest rate was 8.5%. The last time EPFO paid lower than Fy22 rate was in 1977-78 when the interest rate was 8%. This year's lowering of the rate is likely to disappoint millions of its salaried-class subscribers.

March 13, 2022 / 08:12 AM IST
EPFO | Representative Image

EPFO | Representative Image

The Employees’ Provident Fund Organisation (EPFO) on Saturday decided to pay 8.1 percent rate of interest on provident fund deposits for the current financial year, down from 8.5 percent in Fy21.

This was the lowest rate in 43 years, and would disappoint over 60 million of its salaried-class subscribers. The last time EPFO paid lower than this rate was in 1977-78 when the interest rate was 8%.

“The central board has declared 8.1 percent interest rate keeping in view and taking into account its income of Rs. 76,768 crore,” Michael Dias, a central board member said.

The EPFO paid 8.5 percent interest rate to millions of its subscribers in 2020-21. Its EPF rate was 8.5 percent in 2019-20, 8.65 percent in 2018-19 and 8.55 percent in 2017-18. It paid 8.65  8.5 percent in 2016-17 and 8.8 8.5 percent in 2015-16.

The last time when the EPF rate was closer to the Fy22 rate was in 2011-12 when the retirement fund body paid 8.25 percent rate to its subscribers.

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"The interest rate was fixed based on the earnings. It's a difficult year. Other than earnings from debt, we managed to get some corpus from ETF sale before the Ukraine war, which gave us some cushion. The corpus has gone up 13 percent but the interest income is up only 8 percent," said KE Raghunathan, another CBT member.

Raghunathan said the EPFO has a surplus of around Rs 450 crore after paying at a rate of 8.1 percent per year. "It is important to have safety of investments than high return on investment," he said.

Labour minister Bhupendra Yadav said epfo's central board decided the interst rate keeping in mind the "international situation and condition of the equity market". EPFO can not take very risky investments and favours stability, he said.

Employee representatives said they were pressing for more but finally the CBT settled for this amount. I do not remember when the EPFO rate was this low. But it also shows the state of the economy of India, and the difficulty the EPFO faced to earn a sizable corpus to pay more rate," said AK Padmanabhan, another CBT member.

The EPFO invests 85 percent of its annual accruals in debt instruments including government securities and bonds and 15 percent in equity through ETFs. The earnings from both debt and equity are used to calculate the interest payment.

The EPFO has liquidated Rs 12,785 crore worth equity investments in exchange-traded funds (ETFs) and will use capital gains of around 5,529 crore from it for FY22 EPF interest payout.

The interest rate would be officially notified in the government gazette after it gets a go ahead of the finance ministry, following which the pension fund would credit the rate of interest into its subscribers’ accounts.
Prashant K Nanda is an Associate Editor at Moneycontrol .
first published: Mar 12, 2022 12:02 pm
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