EPFO set to lower rate this year

About 47.2 million subscribers of the Employees Provident Fund should get ready for a lower interest rate this financial year.

A senior official of the Employees' Provident Fund Organisation -- which manages the fund -- told Business Standard it would not be possible to retain the 9.5 per cent rate paid for 2010-11.

"A rate anywhere near 9.5 per cent is not possible," he said.

It had taken the labour ministry a lot of time and effort to convince the finance ministry to approve the 9.5 per cent rate for 2010-11, as against 8.5 per cent in 2009-10.

The official said subscribers were paid 9.5 per cent in 2010-2011 as EPFO had a surplus in the interest suspense account accumulated over years.

"This year's rate will depend on the surplus in the account. We have no surplus this year. So, the rate will be based on the return from the EPF corpus in 2011-12," he said.

The official said EPFO was earning 8.25-8.5 per cent on its Rs 1,70,000 crore (Rs 1,700 billion) corpus. It is expects an additional Rs 20,000 crore inflows in 2011-12.

Though the return from the money coming in this year

would be more due to higher interest rates, it would not make much difference, he said.

"A higher return on Rs 20,000 crore (Rs 200 billion) will not have a substantial bearing, as Rs 1,70,000 crore (Rs 1,700 billion) has been locked in at lower rates for a long period," he said, hinting that EPFO might have to revert to 8.5 per cent.

However, subscribers settling claims before the rate for the current financial year is announced will be paid 9.5 per cent.

"Since the rate (on deposits) for 2010-11 has been declared at 9.5 per cent, the settlement of claims during 2011-12 will be at 9.5 per cent till the rate for 2011-12 is declared," EPFO said last month.

The official said this was a bonus for those settling accounts before the announcement of the new rate as the scheme underlined that claims would be settled at the old rate till the new one was announced.