Business

Provident fund rate cut to 4-decade low of 8.1%: 10-point guide

March 12, 2022
Bharat Times

The government has said that in view of the current market situation, the interest rate of provident fund has been cut.

The Employees’ Provident Fund Organization (EPFO) on Saturday reduced the interest rate of Employees’ Provident Fund to 8.1 percent for 2021-22. Labor Minister Bhupendra Yadav justified the retirement body’s decision, citing the current international and market situation.

Let’s take a look at the entire development.

  1. The Board of Trustees of EPFO ​​today reduced the interest rate for 2021-22 to 8.1 per cent, the lowest rate since 1977-78, when it was 8 per cent. The interest rate in 2020-21 was 8.5 percent.

  2. The decision was taken during the meeting of EPFO’s Central Board of Trustees, which was held in Guwahati.

  3. Elaborating on the board’s decision, Labor Minister Bhupendra Yadav said that the interest rate was finalized keeping in mind the prevailing international conditions and market conditions.

  4. “We had recommended 8.1 per cent interest rate after reviewing the current market situation as well as the international scenario. Also, we cannot take high risk instruments as we have to keep in mind the social security and market stability, and Hence the decision was taken, Mr. Yadav said.

  5. The minister said that even after making payments at the rate of 8.1 per cent, the EPFO ​​has a surplus of about Rs 450 crore. The interest rates are decided on the basis of earnings on deposits with the retirement fund body. While the corpus has grown by 13 per cent, interest income has grown by only 8 per cent.

  6. Staff representatives demanded higher interest rates, but the Central Board of Trustees (CBT) settled at 8.1 per cent, PTI reported. The recommendation of the board will be sent to the Finance Ministry soon.

  7. Once the finance ministry ratifies the board’s decision, the EPFO ​​will instruct its regional offices to credit the calculated interest income at the new rate of 8.1 per cent for 2021-22 in the accounts of subscribers.

  8. In March 2020, the EPFO ​​had reduced the interest rate on provident fund deposits to a seven-year low of 8.5 per cent for 2019-20.

  9. Provident fund savings are mandatory under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952. At least 12 per cent of the basic salary of the employee is mandatorily deducted for deposit in the provident fund, while an employer co-contributes an equal amount.

  10. The coronavirus pandemic has affected the earnings of the EPFO. The EPFO ​​delayed payments for 2019-20 and paid interest in two installments, which accrued from its two sources of investment – 8.15 per cent from debt investments and 0.35 per cent from equity portfolios.