The Employees’ Provident Fund Organisation (EPFO) on October 29 got the approval from the Finance Ministry to pay an 8.5 percent interest rate to millions of its subscribers, and the pay-out for FY21 will be done within the next few days.
The move comes ahead of the festive season and will cheer up over 60 million salaried subscribers of the retirement fund manager. The decision comes within a week after the Union Cabinet approved dearness allowance (DA) and dearness relief (DR) for the government staff and pensioners, which was on freeze following the coronavirus pandemic outbreak in 2020.
Labour Secretary Sunil Barthwal told Moneycontrol that the Ministry of Labour and Employment has got the approval of the Finance Ministry. “Yes, we have got the approval, and the interest rate will be credited as soon as possible,” Barthwal said.
The move will cheer up the organised sector employees, who have been facing a difficult time due to a tough employment environment and subsequent income loss in the past 18 months. The job market is gradually opening up at least in pockets in the past two to three months as economic activities pick up pace.
The Central Board of Trustees (CBT), the apex decision-making body of the EPFO, had approved the interest rate in March. Following this, EPFO had sought the Finance Ministry’s nod. Though CBT, headed by the labour minister and represented by employees, employers and other government representatives, decide and recommend the interest rate every year, it needs to be approved by the Finance Ministry for notification and crediting to PF accounts of subscribers.
In March, the CBT had recommended an 8.5 percent interest rate for FY21 after pegging an income of Rs 70,300 crore in the 2020-21 financial year, including almost Rs 4,000 crore from its equity investments.
“The Finance Ministry had a few queries around the financial position and the EPFO has answered them. After paying the 8.5 percent interest rate, the EPFO has a surplus of about Rs 300 crore. Crediting EPFO rate will be key before CBT decides the interest rate for 2021-22 in coming months,” said a government official who declined to be named.
The retirement fund manager had also credited an identical 8.5 percent interest rate in 2019-20; 8.65 percent in 2018-19 and 8.55 percent rate in 2017-18.
The 8.5 percent interest rate for FY21 compares favourably with general provident fund (GPF), the public provident fund (7.1%) and the national savings certificate (6.8 percent) among others.
The stock market has grown significantly since the EPFO board met last in March 2021 just before the second wave of the pandemic. This also offered cushion to the retirement fund manager as their exposure to the stock market via ETFs has led to good earning even if it’s notional till liquidation.
The BSE Sensex was at a little less than 51,000 on March 4 when the central board of EPFO had met last and on October 29, the Sensex closed at 59,306.93. This is despite the BSE Sensex falling over 1800 points in the past two days.
EPFO invests 15 percent of its annual accruals in the stock market and the rest in debt instruments. The pension fund entered the equity market in 2015-16 through ETFs based on the NSE 50 and the BSE 30 indices. Initially, it started investing 5 percent of annual accruals, and subsequently, it went up gradually to 15 percent. EPFO gets EPF deposits or annual accruals of about Rs 1.5 trillion and manages an overall corpus of at least Rs 15 trillion.
Meanwhile, the EPFO added 1.48 million net subscribers in August this year including 918871 new subscribers as per fresh payroll data released last week.