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Business News/ Money / Personal Finance/  EPF interest rate hiked to 8.65% ahead of Elections 2019
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EPF interest rate hiked to 8.65% ahead of Elections 2019

The EPF interest rate hike is seen as a sop for the salaried middle class ahead of general elections in April-May
  • The EPF rate hike will leave the EPFO with a surplus of ₹151 crore in 2018-19, compared to ₹586 crore in 2017-18
  • After the hike, PF interest rate goes up to 8.65% for 2018-19Premium
    After the hike, PF interest rate goes up to 8.65% for 2018-19

    NEW DELHI : New Delhi: The Employees’ Provident Fund Organisation (EPFO), the retirement fund manager under the union labour ministry, raised on Thursday interest rate on deposits for its 60 million subscribers to 8.65% for 2018-19, paring its reserves to the lowest level in three years.

    This is a 10 basis point increase from the 8.55% EPF interest rate announced by the retirement fund for 2017-18. It is the same as in 2016-17 but less than the 8.8% paid out in the previous years.

    One basis point is one-hundredth of a percentage point.

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    In an election year, the EPF interest rate hike is seen as a sop for the salaried middle class and marks a continuation of the central government’s efforts to keep key vote banks happy ahead of Lok Sabha elections due April-May.

    “We have been working for the working class and this interest rate hike shows that we do respect their faith in us," said labour minister Santosh Kumar Gangwar after a meeting of the central board of trustees (CBT) of EPFO.

    On 2 January, Mint reported that EPFO would raise the EPF interest rate for the year ending 31 March 2019.

    Over the past few months, the central government has been trying to woo the common man through various sops. While farmers have benefited from farm loan waivers, the middle class has gained through recent reductions in goods and services tax (GST) rates on several consumer goods, as well as income tax rebates announced in the interim budget.

    CBT is the apex decision-making body of EPFO, with representatives of employees, employers and the government, and headed by the labour minister.

    Gangwar said the retirement fund body had done all the calculations and it would not go into deficit because of the rate hike.

    Asked why EPFO went ahead with a hike when it could have managed with the status quo, the minister said it is EPFO’s duty to take care of the interests of its subscribers.

    “In the current market, where interest rates are falling, maintaining a 8.65% interest rate is a challenge," said Amarpal Chaddha, partner (tax) at consulting firm EY.

    After an 8.65% payout this fiscal, EPFO will be left with a surplus of only 151 crore—below the levels maintained earlier. In 2017-18, the surplus was 586 crore.

    “The best part is we are not running a deficit, but it would have been better to have a bigger surplus as a cushion for next year. But you have to see things in context, and it’s an election year," said an EPFO official, who declined to be named.

    Last year, when EPFO announced an 8.55% interest rate—a five-year low then—Gangwar had justified the move saying, “in 2016-17, after we paid an interest rate of 8.65%, EPFO had a surplus of 695 crore and this year (2017-18), after we reached a rate of 8.55%, the surplus was 586 crore", indicating strained finances were the reason behind a lower payout.

    The hike in the EPF interest rate makes it one of the most rewarding savings schemes. In 2018, the average interest rate of the Public Provident Fund and the National Savings Certificate was 7.7%.

    Overall, EPFO manages a corpus of over 11 trillion. In 2017-18, it had fresh accruals of 1.31 trillion. In the year ending March 2019, the annual deposit is pegged at 1.46 trillion. From the annual deposits, the fund manager invests 15% in equity and the rest in debt instruments, including government and corporate bonds.

    The EPFO rate hike needs the finance ministry’s approval.

    Though CBT took a call on the interest rate, it shelved a decision on another key issue: hiking the minimum assured pension from the present 1,000 to 2,000.

    Asked if EPFO was losing money on its investments in the troubled Infrastructure Leasing and Financial Services Ltd (IL&FS), central provident fund commissioner Sunil Barthwal said he was in touch with the finance ministry and “as of now, EPFO has not suffered any loss due to interest or capital invested in IL&FS bonds". 

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    Published: 21 Feb 2019, 04:44 PM IST
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