EPFO has suggested payment of interest at the rate of 8.25%

NEW DELHI: Amid differences between representatives of employees and employers, the EPFO failed to take a decision today on the interest rate to be paid to its 4.7 crore subscribers for 2011-12 and asked the Finance Ministry to take the final call.

The Employees' Provident Fund Organisation (EPFO) will forward different suggestions with respect to payment of interest on provident fund deposits for the current fiscal to the Finance Ministry for a final decision, Labour Minister Mallikarjun Kharge said after a meeting of the Central Board of Trustees (CBT), the highest policymaking body of the EPFO.

While the EPFO has suggested payment of interest at the rate of 8.25 per cent for the fiscal, the trade union members insisted that it should be 9.5 per cent. The representatives of employers wanted the interest rate to be fixed at 8.5 per cent. The EPFO paid 9.5 per cent interest to its members during 2010-11.

According to sources, this was the first time that the CBT has failed to take a call on the interest rate and has asked the Finance Ministry to decide the issue.

Making a case for payment of 9.5 per cent interest, the trade union members, according to sources, 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 Financial Advisory Committee (FIC) of the EPFO, however, had suggested payment of 8.25 per cent interest in 2011-12.

According to estimates worked out by the EPFO, the payment of 8.25 per cent interest during 2011-12 would result in a deficit of a mere Rs 24 lakh vis-a-vis its earnings.

It had further pointed out that an 8.5 per cent rate of return for subscribers would translate into a deficit of Rs 526.44 crore.

The trade unionists were of the view that if the estimation error is 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.

The unionists also raised the possibility of passing on the interest income on inoperative accounts, on which the EPFO stopped payment of interest from April 1, 2011, to active subscribers.

Inoperative accounts are those accounts that have not received any contribution for 36 months or more. About Rs 15,000 crore lying in these accounts has been invested and is yielding returns, it was pointed out.

The EPFO, however, was not clear whether the income from these inoperative accounts could be distributed among live accounts, or should be kept as reserves.
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