New Delhi: The government announced on Friday that all inactive employee provident fund (EPF) accounts will earn interest retrospectively if subscribers integrate their inoperative accounts with the operative ones, a move that could benefit millions of people.
In 2010, the labour ministry-controlled EPF Organisation (EPFO) had announced that inoperative accounts wouldn’t earn interest. Inoperative accounts are those to which there have been no contributions for the last three years.
“We don’t want to give the interest accrued on inoperative accounts to the active account holders. It should go to whom it belongs,” said R.C. Mishra, the outgoing central provident fund commissioner. He said there are some 160 million EPF accounts of which a little over 40 million are currently active. Of the total inactive accounts, nearly 40 million are inoperative.
The EPFO feels many employees have more than one PF account as they don't transfer their accounts while switching jobs.
If an employee integrates an old, inoperative account with the active account he or she is currently contributing to, the government will pay interest on the inoperative accounts, said Rajesh Bansal, additional PF commissioner. “This will be done in a retrospective manner. But if you withdraw your idle money from the previous account(s), then you will not get the interest,” Bansal said.
Mishra said EPFO was working to streamline accounts by giving one unique number to all active users and once that’s done, the integration process will get faster.
On 7 May, Mint had reported EPFO’s effort to give subscribers a unique account number that will operate independent of employers and benefit millions of people holding jobs.
EPF account holders currently create fresh accounts every time they change jobs because the process of carrying forward the old accounts is considered cumbersome. This adds to the work of the retirement fund manger.
Mishra rejected speculation that the interest earned from inoperative accounts will be distributed among current active members as “not correct”.
In 2011-12, the government pegged interest on EPF at 8.25%, leading to criticism from trade unions. In 2010-11, the interest rate was 9.5%, as a change in the accounting system led to surplus cash on EPF’s balance sheet.
The government hasn’t announced the interest rate for EPF subscribers for this fiscal. Labour unions have demanded an interest rate comparable with the other retirement fund schemes such as the Government Provident Fund and the Public Provident Fund, which currently earn an 8.8% return.
Once the centralized computerization process is completed, the process of integration will become easier, said Ravi Wig, chairman of the industrial relations committee of industry lobby group PHD Chamber of Commerce and Industry.
Mishra, who retired Friday, launched an e-Passbook service that will give online access to EPF subscribers.