EPFO INTEREST RATE INCREASED TO 8.65% FOR CURRENT FISCAL

NEW DELHI: The Employees’ Provident Fund Organisation (EPFO), the retirement fund manager under the Union labour ministry, on Thursday raised interest rate on deposits for its 60 million subscribers to 8.65% for the current fiscal, paring its reserves to the lowest level in three years.

This is a 10 basis point increase from the 8.55% rate announced by the retirement fund for 2017-18. It is the same as the 2016-17 level, but less than the 8.8% it paid out in the previous years.

In an election year, the EPFO’S rate hike is seen as a sop for the salaried middle class and marks a continuation of the central government’s efforts to keep key vote banks happy ahead of Lok Sabha polls. “We have been working for the working class and this rate hike shows that we do respect their faith in us,” said labour minister Santosh Kumar Gangwar after a meeting of the central board of trustees (CBT) of EPFO.

Over the past few months, the central government has been trying to woo the common man through various sops. While farmers have benefited from loan waivers, the middle class has gained through recent reductions in goods and services tax (GST) rates on several consumer goods, as well as income tax rebates announced in the interim budget.

CBT is the apex decision-making body of EPFO, with representatives of employees, employers and the government, and headed by the labour minister.

Gangwar said that the retirement fund body has done all the calculations and it will not go into deficit because of the rate hike.

Asked why EPFO went ahead with a hike when it could have managed with status quo, the minister said it is EPFO’S duty to take care of the interests of its subscribers.

“In the current market, where interest rates are falling, maintaining a 8.65% interest rate is a challenge,” said Amarpal Chaddha, partner (tax) at consulting firm EY. After a 8.65% payout this fiscal, the EPFO will be left with a surplus of only ~151 crore — below levels maintained earlier. In 2017-18, the surplus was ~586 crore. “The best part is we are not running a deficit, but it would have been better to have a bigger surplus as a cushion for next year. But you have to see things in context, and it’s an election year,” said an EPFO official who declined to be named.