Govt okays 8.1% interest on EPF deposits, a 40-year low
NEW DELHI: The Union government on Friday approved an 8.1% rate of interest on employee provident fund (EPF) deposits for 2021-22, the lowest in four decades, according to an order of the labour ministry.
The interest rate was notified after the approval of the Union finance ministry, following which interest will be credited into its subscribers’ accounts.
In March, the Employees’ Provident Fund Organisation (EPFO), the state-run retirement fund manager and a popular savings scheme for millions of salaried middle-class Indians, decided on an 8.1% interest on provident fund deposits for 2021-22, the steepest downward revision in years. In the previous year (2020-21), the fund manager kept the interest rate on savings steady at 8.5%.
The decision to lower the interest rate, a widely watched working-class metric of savings, will not cheer the nearly 60 million active EPFO subscribers, for whom provident fund is often the only mode to save funds for retirement.
Provident fund savings are mandatory under the Employees Provident Funds and Miscellaneous Provisions Act, 1952.
According to EPFO rules, at least 12% of an employee’s basic salary is compulsorily deducted to be saved in provident fund, while an employer co-contributes another 12%.
The pandemic had pressured the EPFO’S earnings. The EPFO delayed payments for 2019-20. This was paid in two instalments, deriving from two sources of the EPFO’S investments: 8.15% from debt investments and 0.35% from equity portfolio.
Pressured earnings have forced the retirement fund manager to revise down the interest rates payable to depositors in some preceding years. For instance, during 2017-18, it had paid an 8.55% interest rate. In 2016-17, the interest rate was even higher at 8.65%.