Interest rate on EPF to be raised to 9.5%

Interest rate on EPF to be raised to 9.5%

New Delhi: In what could be a bonanza for over 50 million employees in the organized sector, Harish Rawat, minister of state for labour, on Wednesday signalled the government’s intent to raise the interest payout on provident fund to 9.5% for the current fiscal.

This followed the central board of trustees (CBT) of the Employees’ Provident Fund Organisation (EPFO) recommending an increase in the rate and kicking off the process of hiring fund managers for its portfolio after the current fiscal. It ruled out any relaxation in investment norms that would allow EPFO to park some of the corpus in stock market instruments. Nearly 30 million accounts defunct for the last three years will not incur any interest beginning 1 April 2011.

CBT deferred a decision on the Employees’ Pension Scheme.

The increased outgo on account of the hike from the present 8.5% will be 1,600 crore, which will be more than offset by a surplus of 1,731 crore in the suspense account, the difference between receipts and disbursements.

The recommendations will now be forwarded to the finance ministry for approval, usually a formality. The CBT meeting was attended by labour minister Mallikarjun Kharge and Rawat among others.

“The demand for liquidity is always there and as of now it was decided not to get into stocks," a labour ministry spokesperson said. “It was decided that EPFO will not take any risk of putting 15% of it in the stock market."

The finance ministry had written to the labour ministry in July seeking such a relaxation to improve returns on the corpus, currently at least 1.7 trillion.

Ashok Singh, vice-president of the Indian National Trade Union Congress, the trade wing of the Congress party, welcomed the decision. “We had demanded that the surplus money of 1,731 crore should be distributed to the workers," he said.

Liz Mathew contributed to this story.