Government officials familiar with the matter said the labour ministry is of the view that EPFO has sufficient surplus of over Rs 3,150 crore, mainly earned from investments in exchange traded funds (ETFs).
The labour ministry has rejected the finance ministry’s request to reduce the 8.65 per cent interest rate offered in 2018-19 by the Employee Provident Fund Organisation, the government owned pension fund manager, in a move that should bring cheer to 46 million subscribers whose funds are managed by EPFO.
Government officials familiar with the matter said the labour ministry is of the view that EPFO has sufficient surplus of over Rs 3,150 crore, mainly earned from investments in exchange traded funds (ETFs).
EPFO interest rate is determined by the organisation’s Central Board of Trustees (CBT), which does so after assessing the annual returns on the investments. It is the duty of EPFO to pass on the rightful share of the subscribers, the government officials cited in the first instance added on condition of anonymity. EPFO does not take any money from the consolidated fund of the Government of India, and is not obliged to follow the finance ministry’s suggestions, they added.
CBT is chaired by the labour minister and has representation of central and state government officials, trade unions and industry bodies.
“The finance ministry is worried that EPFO is offering significantly higher returns compared to similar funds managed by the central government. Instead of asking for the EPF interest rate to be slashed, it should make its fund management system more efficient,” said one of the officials.
The finance ministry on Tuesday slashed interest rate on General Provident Fund (GPF) and other similar funds to 7.9 per cent for the quarter ending September 30 as compared to 8 per cent offered on pension funds of government employees the previous quarter.
Last month, the finance ministry wrote to the labour ministry to review its decision to offer 8.65 per cent interest rate on two grounds; one pertained to the EPFO’s decision to invest in financially troubled Infrastructure Leasing & Financial Services (IL&FS) group companies; the other was appropriation of surplus of the previous year.
HT reported the matter on June 20.
“The ministry of Labour and Employment is therefore advised to consider a rate of interest for FY 2018-19 which does not fully utilise the surplus of the previous year and leaves a reasonably higher surplus in the account undistributed,” the finance ministry wrote to the labour secretary last month.
The labour ministry replied to the finance ministry that the interest rate was fixed after keeping a reasonable surplus, which is more than Rs 3,150 crore, a second official said.
The official said that a large part of this surplus came as returns from the investments it has made in ETFs over the past few years. “ETFs, based on Sensex 30 and Nifty 50, are relatively safe, with lower risk, and EPFO invests a part of its funds in such instruments. It appears that the mention of this surplus amount was missed when the matter was initially communicated to the finance ministry. Now, a full brief has been sent to the finance ministry,” this official added.
Official spokespersons of the labour ministry and EPFO did not respond to queries.
EPFO, on February 21, raised the interest rate on funds by 10 basis points from 8.55 per cent, offered for 2017-18. CBT decides the annual interest rate offered to its subscribers, but as per the convention, it seeks the concurrence of the finance ministry before notifying this. The interest rate declaration has been delayed by about three months because of the finance ministry’s objection, the first official said.
Dr G Sanjeeva Reddy, president, Indian National Trade Union Congress (INTUC) and one of the CBT members, said, “With this kind of surplus we wanted the subscribers to get a 9 per cent interest rate. When the Government of India does not contribute a penny, it has no business to regulate an independent organisation.”
