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PF Panel Recommends 8.95 per cent Rate of Return on Retirement Savings

PF Panel Recommends 8.95 per cent Rate – The central board of trustees of EPFO, chaired by Union Labour Minister, Bandaru Dattatreya, is likely to take a final call on fixing the interest rates in February.

The Finance and Investment Panel of the Employees’ Provident Fund Organisation (EPFO) board has proposed an 8.95 per cent rate of return on retirement savings under its watch for 2015-16 as it is ‘feasible,’ according to people in the know-how.

The proposed rate, the highest in five years, may face resistance from the Finance Ministry which is looking to cut interest rates on small savings instruments. At present, EPFO gives 8.75 per cent as the rate of return. This would make investment in EPFO more attractive than most savings alternatives such as General Provident Fund, Public Provident Fund, Special Deposit Scheme and National Savings Certificates which offer lower rate of return.

The central board of trustees of EPFO, chaired by Union Labour Minister, Bandaru Dattatreya, is likely to take a final call on fixing the interest rates in February.

“The Finance Investment Audit Committee (FIAC) recommended giving up to nine per cent as interest rates for 2015-16 to the EPFO board which will meet early next month,” said an FIAC member, on condition of anonymity, referring to the decision at its meeting on Monday.

The EPFO has estimated Rs.34,844 crore as its income meant for distribution of interest to its 8.7 crore subscribers for 2015-16. This includes a surplus of Rs.1,604 crore which accrued last year to the EPFO’s income beyond the fund’s original estimates.

If EPFO increases the interest rate to 8.95 per cent, the surplus available with the retirement body would come out to be Rs.91.40 crore. At nine per cent, however, there will be a deficit of Rs.102.75 crore. At 8.80 per cent and 8.85 per cent, the surplus would be Rs.673.85 crore and Rs.479.70 crore, respectively.The FIAC also recommended keeping some surplus in hand in order to meet the impact of “declining trend of rate of return on the debt instruments in the last couple of years.” It also said the rate of return from equity instruments needs to be kept in mind before declaring the rate of return.

For the first time this financial year, EPF savings were deployed in equity markets. While the finance ministry has raised the ceiling for equity investments by non-government retirement funds to 15 per cent of their fresh accretions, the EPFO has made a cautious start with a five per cent allocation to equities since August 2015.

The EPFO had provided an 8.75 per cent rate of interest for 2014-15 as well as the previous financial year.

Earlier, the EPFO had proposed 8.90 per cent as rate of interest to the union labour ministry for taking in-principle approval of the finance ministry. However, sources said the finance ministry is looking to moderate the returns on small savings instruments and wanted EPFO’s returns to fall in line.

EPF savings are funded by deducting 24 per cent of salary from employees working in firms with 20 or more workers. These contributions, half of which are paid by the employer and half by the employee, are mandatory for employees with a salary of upto Rs.15,000 per month.

Source: The Hindu

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