PF rate cut to 8.1% for 2021-22, the lowest in years

The EPFO ​​is the country’s largest pension fund and the second largest non-bank financial institution with a corpus of approximately ₹16 lakh crore

The EPFO ​​is the country’s largest pension fund and the second largest non-bank financial institution with a corpus of approximately ₹16 lakh crore

The return on retirement savings parked at the Employees’ Provident Fund Organization (EPFO) will fall to 8.1% for 2021-22, 0.4% lower than the 8.5% that EPF members’ accounts have seen over the past two years years and the lowest rate in several years.

The Central Board of Trustees (CBT) of the PF body, chaired by Labor and Employment Minister Bhupender Yadav, is said to have recommended the 8.1% interest rate for the year at its meeting in Guwahati on Saturday. The EPFO ​​is the country’s largest pension fund and the second largest non-bank financial institution with a corpus of approximately ₹16 lakh crore.

The proposed interest rate must be approved by the Treasury Department before it is added to EPF account holders’ balances, and PF accounts are typically credited with annual returns with a significant time lag after the end of the year in question.

Lowering the EPF rate at a time when inflation is picking up again could draw criticism from central unions who have opposed the decision to lower the rate to 8.5% from 8.65% in 2018-19 to lower in 2019-20.

The EPFO ​​has 24.77 million members with EPF accounts, of which 14.36 million members were assigned unique account numbers (UANs) as of March 31, 2020. Approximately five million members are active contributors with new growth rates in their EPF accounts over the 2019-20 period.

EPF accounts are mandatory for workers earning up to ₹15,000 a month in companies with more than 20 employees, with 12% of base salary and carer’s allowance deducted as employee contributions and a further 12% paid by the employer. A portion of this 24% cumulative contribution is paid into the 1995 Employees’ Pension Scheme.

Details of the 2021-22 earnings estimates on which the 8.10% rate was recommended are yet to be determined, but it is possible that the recent turbulence in equity markets may have impacted returns on EPFO ​​equity investments.

The EPFO ​​had started equity investments in 2015-16, capped at 15% of new inflows. A minimum of 45% and a maximum of 65% of the cash inflows are invested in government securities. In 2020-21, fund managers invested nearly 1.82 lakh crore, which includes equity investments of at least 5% of incremental EPF inflows into members’ accounts.

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