EPFO Raises Rate Marginally to 8.8% for FY16; TUs Unhappy

Gradual Changes Interest rates on small savings are set to dip as the govt revises the interest rate framework to align it with market rates. PF rates have also seen only a marginal increase

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Employees' Provident Fund Organization (EPFO) has marginally raised interest rate on retirement savings to 8.80% for 2015 16 from 8.75% last year but lower than 8.95% proposed earlier, disappointing trade unions that had been pitching for the higher rate. The EPFO provides interest from earning on investments of formal sector workers' funds without any assistance from the government.The rate of return on provident fund stood unchanged at 8.75% over the past two financial years.
Union labour minister Bandaru Dattatreya, who chaired the meeting of the Central Board of Trustees on Tuesday , said 8.80 % is an “interim“ interest rate. The finance ministry will have to notify this proposed rate for it to take effect. The Finance, Investment & Audit Committee of EPFO board had proposed 8.95% return as “feasible,“ at its meeting held last month.
“The government contributes only one-sixth to the EPFO corpus but is trying to control all of it. This is not acceptable and we will flag the issue at trade unions' protest on March 10,“ DL Sachdeva of All India Trade Union Congress said.
EPFO has estimated ` . 34,844 crore as its income meant for distribution as interest to its 8.7 crore subscribers for 2015-16. This includes surplus of ` . 1,604 crore which accrued in 2015 to EPFO's income beyond the fund's original estimates.
The Finance, Investment and Audit Committee had discussed that with increase in the interest rate to 8.95%, surplus available with the retirement body would come out to be ` . 91.40 crore. At 8.80% and 8.85%, surplus would be ` . 673.85 crore and `. 479.70 crore respectively, the committee had said.
“The government should not rule in this area as it is our money and we are not asking for any monetary support from them,“ Vrijesh Upadhyay of Bhartiya Mazdoor Sangh said. The union will write to finance minister Arun Jaitley against the move, he said.
The labour ministry had earlier proposed 8.90%. However, officials said the finance ministry , which is looking to moderate returns on small savings instruments, wanted EPFO's returns to fall in line.
Other than higher rate of return, EPFO was actively considering a one-time bonus to its low-income subscribers who would have contributed to the corpus for 12 months for 2015-16. However, the proposal was not taken up at the meeting after trade unions registered their protest against any such move.

SOURCE:-http://epaperbeta.timesofindia.com/Article.aspx?eid=31818&articlexml=EPFO-Raises-Rate-Marginally-to-88-for-FY16-17022016019016