New Delhi: Seven months have passed since the Employees Provident Fund Organization (EPFO) announced interest rate for 2018-19. However, the interest amount is yet to be credited to the account of subscribers, thereby hurting earnings of millions of beneficiaries.
As per The EPF Act of 1952, interest is credited to the member's account on monthly running balances with effect from the last day of each year. It means, the interest for the financial year should, in practice, get credited to EPFO subscribers account on 31 March.
While the EPFO board decided to pay 8.65% interest rate to its subscribers for 2018-19 in February 2019, it has not credited this to their account till date. While the retirement savings body has been saying that they are awaiting a formal approval from the finance ministry, such a delay adversely impacts the return on deposits.
Till the time interest is credited to the account, the amount will not get compound interest. So, if a subscriber has Rs1 million deposit in his EPF account, he or she will not get the benefit of compound interest of Rs. 86,500 for half a year, which should have got credited to his or her account on 31 March 2019.
Some may argue that a majority of EPFO subscribers may not have Rs. 1 million in deposits, but most deposits come from high salaried subscribers. Lower salaried subscribers of EPFO would also feel the pinch.
Since more than 100,000 subscribers withdraw or settle their accounts every month, settling an account on a lower interest rate does impact their earnings as well. Since a lot of EPFO subscribers are floating workforce in contractual or in fixed term employment, they settle their accounts while changing jobs and moving cities. While there is a provision to merge old accounts, some employees on the lower ladder of the labour market fail to do so because of lack of smooth transitions.
Despite repeated attempts to reach the central PF commissioner over phone, Mint could not get a response from him.
EPFO manages Rs. 11 trillion retirement corpus and has an active subscriber base of 60 million.