NEW DELHI: The 60 million subscribers of the Employees’ Provident Fund Organisation (EPFO) could face a further reduction on their returns in the current year because of heavy withdrawals and lower contributions due to the Covid-19 pandemic, officials told ET.
Declining interest rates over the past few years have also impacted earnings of the fund, which invests most of its corpus in government securities. The fund declared an interest rate of 8.5% for FY20, the lowest in seven years, and 8.65% in FY19.
A decision on the rate of interest for the current year is likely to be taken at the 228th meeting of the EPFO central board of trustees (CBT) to be held on March 4.
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“FIAC (finance investment and audit committee) is analysing impact on EPFO’s earnings in 2020-21 following huge withdrawals and dip in deposits, based on which it will arrive at an interest rate for the year,” a government official said.
The FIAC is likely to meet a day before the CBT meet to decide on the interest rate based on the earnings of the EPFO during the year. The labour minister is chairman of the CBT, which is the apex decision-making body of the EPFO.
Withdrawals may surpass FY19 Nos
It’s estimated that more than 20 million EPFO subscribers made cumulative withdrawals of over Rs 73,000 crore until December 31, 2020, and this could rise further by the end of the financial year to surpass annual withdrawals of Rs 81,200 crore in FY19 by 16.37 million subscribers.
Further, in the May-July period, the government reduced the PF contribution to 10% from the statutory 12% under the EPF Act to allow a higher takehome salary for employees and reduce the burden on employers due to the pandemic. The EPFO has not disclosed how many establishments and employees availed of this option.
The retirement fund body invests up to 15% of its incremental corpus in exchange traded funds (ETFs). In FY20, the return on EPFO’s equity investments was minus 8.3%, compared with 14.7% in FY19.
The EPFO provided an 8.65% interest rate to subscribers for FY17 and 8.55% in FY18. It was slightly higher at 8.8% in FY16. It had given 8.75% interest in FY14 as well as FY15.
The higher-than-market returns over the years have also eroded the EPFO’s surplus, leaving it with little cushion to continue giving high returns. EPFO returns are substantially higher than that available on small savings. It had a surplus of Rs 1,000 crore after giving an 8.5% return for FY20.
The February 1 budget had said interest on provident fund contributions by employees exceeding Rs 2.5 lakh per year will be taxed from April 1, 2021.
