In an unprecedented development, the trustees of retirement fund body Employees' Provident Fund Organisation (EPFO) on Friday failed to decide the interest rate for its over 4.7 crore subscribers for 2011-12 following sharp differences among them on the issue. They have sought the Finance Ministry's intervention.
“The EPFO will ask the Finance Ministry to finalise the rate of interest on provident fund deposits from the three different rates suggested by EPFO officials, trade union and employers' representatives,” said Labour Minister Mallikarjun Kharge after the meeting of the trustees.
While the EPFO has suggested payment of interest at the rate of 8.25 per cent for 2011-12, the trade union members insisted that it should be 9.5 per cent.
The representatives of employers wanted the rate to be fixed at 8.5 per cent. The EPFO paid 9.5 per cent interest in 2010-11.
As per the practice, the EPFO's apex decision-making body, the Central Board of Trustees (CBT), decides interest rate on the basis of income projections and seek the Finance Ministry's concurrence before implementing that.
“This is for the first time that the final decision on the rate of interest will be taken by the Finance Ministry rather than by the CBT, which is an autonomous body. This is unfortunate,” Hind Mazdoor Sabha Secretary A.D. Nagpal said.
Mr. Nagpal, a CBT member, added: “The CBT should have recommended a single rate of interest, 9.5 per cent as suggested by employees' representatives.”
Making a case for payment of 9.5 per cent interest, the trade union members argued that the EPFO cannot pay less than 8.6 per cent interest, the rate offered by the government under the Public Provident Fund (PPF) scheme.
The EPFO's advisory body, Finance and Investment Committee (FIC), had suggested payment of 8.25 per cent interest for 2011-12 as it would leave a deficit of a mere Rs. 24 lakh.
It further pointed out that an 8.5 per cent rate of return would translate into a deficit of Rs. 526.44 crore.
The trade unionists as well as employers' representatives suggested that if the estimation error was factored in properly, the EPFO could spare around Rs. 400 crore, which would be sufficient to pay an additional 0.25 per cent over the projected 8.25 per cent rate of return this fiscal.
Mr. Kharge said: “The employers' representatives suggested payment of 8.5 per cent rate of interest for this fiscal using some savings from estimation error.”
The unionists also called for passing on the interest income on inoperative accounts, on which the EPFO stopped payment of interest from April 1, 2011 to active subscribers.
