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EPFO may slash FY20’s interest rate; payout of 8.5% unlikely as PF contributions fall

, ET Bureau|
Last Updated: Jun 26, 2020, 05.30 PM IST
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Summary EPFO may cut 8.5% rate declared for FY20 because of declining return on investments and cash flow.

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NEW DELHI: The Employees’ Provident Fund Organisation (EPFO) may reduce the 8.5% interest rate declared for FY20 due to declining return on investments and tepid cash flow, lowering the payout on retirement savings of its 60 million subscribers.

The interest rate was declared based on the earnings of FY20, however, the payout to subscribers will be made in the second half of the current financial year.

The finance, investment and audit committee (FIAC) of EPFO will soon meet to assess its ability to pay the declared interest, sources told ET.

The 8.5% interest rate declared in the first week of March has not been approved by the finance ministry yet. The labour ministry can notify the rate only after the finance ministry approves it.


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“Disbursal of money based on the interest rate declared for last year will be difficult for EPFO as the cash flow has significantly reduced and liquidation of its funds will not be easy at the time of disbursal,” said a person aware of the deliberations.

Central provident fund commissioner Sunil Barthwal did not respond to queries.

Relief steps for employees, companies
The government has since March announced a series of provident fund-related relief measures to help employees and employers tide over the impact of the Covid-19 crisis. The provident fund contribution has been lowered from 12% to 10% of basic pay for employees and employers for three months.

The government will also pay the employers’ share of the contribution for certain categories of workers for six months. Companies have also been given more time to contribute their share to the retirement savings of employees.

Subscribers could also avail of non-refundable withdrawals of three months of basic salary or 75% of their total contribution to the PF kitty to help them with cash in hand during the lockdown.

This has meant lower cash inflows into the scheme while the decline in interest rates and stock market volatility has impacted returns on investments. The EPFO invests 85% of funds in debt instruments and 15% in exchange-traded funds (ETFs).

In April and May, the EPFO said it had settled 3.61 million claims amounting to Rs 11,540 crore. Of this, nearly half or 1.55 million claims, amounting to Rs 4,580 crore, were related to the recently introduced Covid-19 advance under the Pradhan Mantri Garib Kalyan Yojana (PMGKY), it had said earlier this month.

Trade unions — part of the EPFO’s central board of trustees, its highest decision-making body — said they will oppose the move.

“We will not agree to any reconsideration on the already announced interest as it was agreed upon and announced after taking into account the returns on investments in the previous financial year,” said Vrijesh Upadhyaya of the Bhartiya Mazdoor Sangh.

The FIAC had recommended that the central board of trustees reduce the interest rate for FY20 to 8.5% from 8.65% in FY19. This had left a Rs 700 crore surplus with the retirement fund body.

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