FP rate reduced to 8.1% for 2021-22, lowest in years

EPFO is the largest pension fund in the country and the second largest non-banking financial institution with a corpus of around ₹16 lakh crore

EPFO is the largest pension fund in the country and the second largest non-banking financial institution with a corpus of around ₹16 lakh crore

The return on pension savings parked with the EPFO ​​is expected to fall to 8.1% for 2021-22, 0.4% lower than the 8.5% rate credited to EPF member accounts over the past two years and the lowest rate in several years.

The Central Board of Directors (CBT) of the PF body, chaired by Labor and Employment Minister Bhupender Yadav, reportedly recommended the rate of 8.1% for the year when it met in Guwahati on Saturday. . EPFO is the largest pension fund in the country and the second largest non-banking financial institution with a corpus of around ₹16 lakh crore.

The proposed rate will need to be ratified by the Ministry of Finance before being added to the balance of EPF account holders and generally, PF accounts are credited with annual returns with a significant lag after the end of the year in question.

The cut in the EPF rate, as inflation picks up again, could draw criticism from trade union centrals who opposed the decision to cut the rate from 8.65% in 2018-19 to 8.5%. in 2019-20.

“EPFO gives higher returns than other savings instruments”

Mr Yadav said he felt good to announce the 8.1% interest rate on ETH savings for 2021-22 at a time when a 10-year fixed deposit with the State Bank of India yields only around 5.4%, while returns on savings instruments such as the Public Provident Fund are around 6.8% to 7.1%.

“This year, our Board of Directors, given the international situation and the volatility of the markets, has chosen to recommend a stable return because we cannot invest in high-risk instruments. We will still have a surplus of ₹450 crore… The recommendation of the central board has been made keeping safety of minds as a priority and we will look for more attractive investment avenues in the future,” he said. he said after the conclusion of the board meeting in Guwahati.

The EPFO ​​Board of Directors will meet more frequently

It has been decided that the EPFO ​​board will meet every three or four months from now on and the next meeting will be held in June or July in Bengaluru, the minister said. It was originally proposed that the meeting be held in Kerala, but there was some apprehension about the monsoon there at the time, so we opted for Bengaluru so that the council would meet in southern Kerala. India next time, Mr. Yadav said.

EPFO has 24.77 crore members with EPF accounts, of which 14.36 crore members have been assigned Unique Account Numbers (UANs) as of March 31, 2020. About five crore members are active contributors with further increases made to their EPF accounts in 2019-2020.

EPF accounts are compulsory for employees earning up to ₹15,000 per month in companies with more than 20 workers, with 12% of base salary and dearness allowance deducted as employee contribution and 12% supplement paid by the employer. Part of this cumulative contribution of 24% is transferred to the 1995 Employees’ Pension Scheme.

EPFO’s income from investments this year stood at ₹76,768 crore compared to around ₹70,000 crore in 2020-21, when it paid 8.5% to EPF account holders. The EPF Corpus grew during the year from ₹8.29 lakh crore to ₹9.42 lakh crore.

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EPFO had started taking equity investments in 2015-16, with a cap of 15% of new inflows. A minimum of 45% and a maximum of 65% of the returns 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 additional ETH inflows into members’ accounts.

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