Central trade union representatives in EPFO’s CBT have rejected the move and said they would want to know how it will benefit EPFO subscribers.
The long-pending move to permit a one-time shift of subscribers of the Employees’ Provident Fund Organisation (EPFO) to the National Pension System (NPS) is likely to be delayed further. The proposal to bring about an enabling framework from the EPFO side for the shift has met with stiff opposition from the Central Board of Trustees (CBT) of the EPFO at its meeting on Wednesday. The CBT in its meeting had cleared a reduction of interest rates for 2017-18 to 8.55% from 8.65%.
Trade union representatives of the CBT told Moneycontrol that the government could not come out with a compelling reason to allow such a one-time shift to NPS. “We have rejected the move outright and have asked the government to come up with justifications. We want to know how this move will benefit EPFO subscribers,” A K Padmanabhan, President, Centre for Indian Trade Unions (CITU), said.
Echoing the sentiments, Virjesh Upadhyay, National Secretary, Bhartiya Mazdoor Sangh, said that the trade unions would continue to oppose the move since these are two distinct products. “EPFO and NPS are not offering similar products. The features are quite different. How can one suggest switching unless there is some similarity of products?” he said.
While both EPF and NPS are aimed at creating an old-age income security framework in the country, there are differences in investment and taxation. While EPF is an exempt-exempt-exempt (EEE) scheme, NPS is partially taxable at the withdrawal stage which makes it an EET (exemt-exempt-taxable) scheme.
Moreover, the investment norms for both the schemes are different. Thus, while highest equity exposure under EPFO is capped at 15 per cent, NPS allows a maximum of 75 per cent equity exposure under its auto choice life-cycle funds. The Pension Fund Regulatory and Development Authority (PFRDA) has, in fact, recently recommended raising its equity cap on the active choice from the present level of 50 per cent to 75 per cent and has floated a discussion paper for the move. Thus, while EPFO has been extremely conservative on the equity front, the pension regulator has sought to give an aggressive choice to its subscribers who want to take advantage of the equity markets in the long run.
While the government had announced two years ago in the Union Budget for 2016-17 that it would allow EPF subscribers to shift to NPS, the enabling provisions have not been in place. The PFRDA on its part has been pushing the government for a framework to enable a smooth switch. In fact, Chairman, PFRDA, Hemant Contractors, in an interview to Moneycontrol had said that he had sought clarify from the government on how the shift will work. “People have to be very clear in their mind on how this shift will work and what will be the impact. Unless that happens, this provision will not work,” Chairman, PFRDA, Hemant Contractor, had said. Among the things that would facilitate the process is an enabling amendment to the EPFO Act.Recently, in the hope that the enabling framework would be in place, the PFRDA had in fact come out with broad guidelines for transferring provident fund of funds lying in the PF or recognized superannuation funds to the NPS.