Interest on PF savings hiked to 9.5 pc

Interest on PF savings hiked to 9.5 pc

The one percentage-point increase has taken the interest on PF deposits of 4.71 crore organised sector workers to a five-year high from the current level of 8.5 per cent.
The decision to raise the interest rate was taken by the Central Board of Trustees (CBT), the highest policy-making body of the Employees Provident Fund Organisation (EPFO). The recommendation of the CBT, headed by Union Labour Minister Mallikarjun Kharge, will be forwarded to the Finance Ministry. The Ministry, which notifies the provident fund interest rate, usually accepts the CBT recommendation.

Although the decision to provide 9.5 per cent interest rate will result in a deficit of about Rs 1,600 crore, the margin can be made good by a surplus of Rs 1,731 crore in the interest suspense account of the EPFO.

The EPFO had been maintaining an 8.5 per cent rate on provident fund since 2005-06. Prior to 2005, the retirement fund manager had maintained an interest rate of 9.5 per cent for three consecutive financial years between 2002 and 2005.

Employees’ demand
The decision favours the employees’ unions that had been demanding that the rate of returns on provident fund deposits be raised to 9.5 per cent. In April, the trustees of the EPFO had deferred a decision on rate of returns.

The EPFO also took two other significant decisions on Wednesday, Union Minister Kharge told Deccan Herald. The retirement fund manager decided that no interest would be given from April 1, 2011, to those PF accounts that are not in operation for three years. According to Kharge, there were over three crore PF accounts that have not been touched by their deposit holders.

Also, it has been decided to make the government the guarantor for PF investments.
The Finance Ministry recently said it wanted the Labour Ministry to follow the investment pattern it had notified, which provided for up to 15 per cent of the corpus in stock markets without the CBT’s approval.

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