The government has said that the reserve fund rate has been cut due to prevailing market conditions
The employee reserve fund interest rate was cut to 8.1% by the employee reserve fund organization (EPFO) for the period 2021-22 on Saturday. Labor Minister Bhupender Yadav justified the pension agency’s decision by citing the market and international situation.
Let’s take a quick look at the whole action.
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The EPFO board today cut interest rates to 8.1 percent for 2021-22, the lowest level since 1977-1978, when it was 8%. The interest rate is 8.5% for the period 2020-21.
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The decision was made during the meeting of the central board of directors of the EPFO, held in Guwahati.
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Labor Minister Bhupender Yadav while explaining the board decision said that the interest rate was fixed after taking into account prevailing international conditions and market situation.
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“We recommend 8.1% interest rate after considering the prevailing market situation as well as the international scenario. In addition, we cannot use high-risk instruments because we have to save attention to social security and market stability, so the decision was made,” said Mr. Yadav.
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The minister said that even after paying the 8.1% rate, EPFO still has a surplus of around Rs 450 crore with it. The interest rate is fixed based on the pension fund agency’s earnings on the deposits it has. While the business grew 13%, interest income grew only 8%.
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Employee representatives sought higher interest rates but the Central Board of Trustees (CBT) settled for 8.1 percent, PTI reported. The recommendation of the board of directors will be sent to the Ministry of Finance soon.
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After the Treasury Department approves the board’s decision, EPFO will direct its field offices to credit interest income at the new 8.1% rate for 2021-22 in subscriber’s account.
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In March 2020, EPFO cut the reserve fund deposit rate to a 7-year low of 8.5% for 2019-20.
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Contingency fund savings are required under the Employee Contingency Fund and Other Regulations Act, 1952. At least 12 percent of an employee’s base salary is required to be set aside for savings into a reserve fund, in when the employer co-contributes an equal amount.
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The Coronavirus pandemic has strained EPFO earnings. EPFO has deferred payments for 2019-20 and paid interest in two installments, derived from its two investment sources – 8.15% from debt investments and 0.35% from equity portfolio Owner.
