EPFO hikes interest rate to 8.65%, move to benefit 170 mn subscribers

EPFO hikes interest rate to 8.65%, move to benefit 170 mn subscribers
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New Delhi, Feb 22: The Employees’ Provident Fund Organisation (EPFO) approved of an increase in the interest rate on PF deposits to 8.65 per cent for 2018-19 from 8.55 per cent in the previous financial year. This is the first time in three years that it has announced a hike in the interest rate for its subscribers.
The proposed interest rate will now require a nod from the Ministry of Finance, said Labour and Employment Minister Santosh Kumar Gangwar, who chaired the central board of trustees meeting of the EPFO. A rise of 10 basis point in the interest rate will lead to an additional benefit of Rs 1,000 to Rs 10,000 for an accumulated saving of Rs 10 lakh to Rs 1 crore by a private sector subscriber. The decision is likely to benefit 170 million subscribers from the private sector.
The rate of interest paid by the EPFO had been declining since 2015-16, from 8.8 per cent to 8.65 per cent in 2016-17 to a five-year low of 8.55 per cent in 2017-18.
The new rate of interest announced by the retirement fund body is higher than the return on investment in small saving schemes and that of provident fund schemes for government employees.
While the public provident fund scheme and the five-year national savings certificate scheme offer an interest rate of 8 per cent at present, various fixed deposit schemes of public sector banks give benefits in the range of 7-7.8 per cent. The general provident fund, meant for government employees, fetches 8 per cent interest rate at present.
The EPFO now will be left with a surplus of Rs 151.67 crore by providing an interest of 8.65 per cent for the current financial year. Had the EPFO further hiked the interest rate to 8.7 per cent, it would have resulted in a deficit of Rs 158 crore, as per its income projections.
Asked about its investments in the crisis-hit Infrastructure Leasing & Financial Services (IL&FS), a top EPFO official said: “We have received regular returns from these investments so far. There has been no default so far. We have also written to the finance and corporate affairs ministries and are closely monitoring the situation.”
The EPFO has invested Rs 570 crore in IL&FS, Prabhakar Banasure, a member of the EPFO’s finance, investment and audit committee, had told Business Standard on Wednesday. It recently invested Rs 1,500 crore in Bharat 22 ETF (exchange-traded funds).
The EPFO deferred a proposal to hike the minimum monthly pension for its subscribers to Rs 2,000 from Rs 1,000 currently. According to the proposal, doubling the minimum monthly pension would require an additional outgo of Rs 3,000 crore.