Employees may earn interest on inoperative EPF savings account3 min read . Updated: 29 Mar 2016, 01:57 AM IST
Central board of trustees will on Tuesday review a decision which prevented inoperative employees provident fund accounts from earning interest
New Delhi: Millions of organized sector employees may start receiving interest payments on their inoperative employees provident fund (EPF) savings.
The central board of trustees (CBT), the highest decision-making body of the EPF organisation, or EPFO, will on Tuesday review a four-year-old decision which prevented inoperative EPF accounts from earning interest.
Inoperative EPF accounts are those where there have been no contributions by an employee or their employer for 36 months.
The decision not to make interest payments into such accounts was taken in fiscal 2012 to persuade workers to either withdraw or merge their inoperative accounts with an active one.
EPFO said on Monday “crediting of interest to inoperative accounts of EPF subscribers" is one of the key issues CBT members will decide on Tuesday.
CBT is a tripartite body comprising government, industry and workers’ representatives. The labour minister is chairman of CBT.
If agreed upon, all inactive accounts will start accumulating interest for millions of subscribers. There are more than 40 million inoperative accounts with EPFO, the retirement fund manager.
“We have been opposing not giving interest to inoperative account holders for the last four years and shall welcome a step to start crediting interest to those accounts," said A.K. Padmanabhan, a CBT member representing employees.
Padmanabhan, who is also president of the Centre of Indian Trade Unions (CITU), a national trade union, said since the government has decided to restrict the withdrawal of EPF accumulations, EPFO has no choice but to pay interest on those accounts.
On 25 February, EPFO issued a notification tightening the withdrawal norms of provident fund.
As per a labour ministry notification, EPF subscribers will not be able to withdraw provident fund after attaining the age of 54 years, and will have to wait until they are 57 years of age.
As per earlier rules, EPF subscribers were allowed to claim 90% of the accumulations in their PF account at the age of 54 years, and their claims were settled just one year before retirement.
This is not possible now.
Besides, employees cannot withdraw all their EPF savings even if they have quit a job and are jobless, which was not the case earlier.
“If inoperative accounts do not earn interest in the changed policy environment, then it will be a clear injustice against the workers who save their hard-earned money in EPF," said Padmanabhan.
Besides, the central board of EPFO will take a look on its ETF investments that it started in the current fiscal for the first time.
EPFO has started equity investments through two exchange traded funds, or ETFs.
An exchange traded fund comprises a clutch of stocks that reflect the composition of an index, such as the S&P CNX Nifty or BSE Sensex, and are traded on stock exchanges like company stocks.
In 2015-16, EPFO invested a little over ₹ 5,000 crore, or 5% of its annual accrual, in equities via ETFs.
But a CBT member said the return so far is around 10% negative.
“EPFO’s equity investments have returned a negative yield in the range of 9-10%," said D.L. Sachdeva, another CBT member and the national secretary of the All India Trade Union Congress, or AITUC.
“We shall ask for a review of the ETF investments during the meeting," Sachdeva said.
But an EPFO official, who asked not to be named, said that equity investments cannot be judged on one year’s return and that “we have to keep investing for a much better return in the long run".
As per an EPFO statement, the CBT will also discuss issues relating to employees’ deposit-linked insurance scheme and some debt market investment rules for better deployment of EPF money.
EPFO has around 40 million active subscribers and it manages a corpus of more than ₹ 8.5 trillion.