Friday 1 July 2022
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EPF deposits to now fetch lowest interest rate in 4 decades

The EPF interest rate provided for 2019-20 was the lowest since 2012-13 when it was brought down to 8.5%; now it is 8.1%, the lowest since 2018

In a that may gladden economists but invite the ire of the salaried class, the union government today approved the reduction of the rate of interest on the employees’ provident fund (EPF) deposits for 2021-22 — from 8.5% to 8.1% — for almost five crore subscribers of the Employees’ Provident Fund Organisation (EPFO). The decision, taken by the EPFO in this year, brings the rate of interest on PF deposits to a more than four-decade low.

According to an official order of the retirement fund body, the Ministry of and Employment conveyed the approval of the central government to credit an 8.1% rate of interest, instead of the 8.5% provided in 2020-21. The Union labour ministry had sent the proposal to the ministry of finance.

Now, after the ratification of the interest rate by the government, the EPFO would start crediting the fixed rate of interest for the fiscal into the EPF accounts.

Prior to this, the lowest rate of interest prior to this was in 1977-78, when it stood at 8%.

In 2020, the EPFO had lowered the interest rate on provident fund deposits to a seven-year low of 8.5% for 2019-20, from 8.65% in 2018-19. The same rate of interest was provided to its subscribers in 2016-17, while it was 8.55% in 2017-18.

The EPF interest rate provided for 2019-20 was the lowest since 2012-13 when it was brought down to 8.5%.

The rate of interest was slightly higher at 8.8% in 2015-16. It had given an 8.75% rate of interest in 2013-14 as well as 2014-15, higher than the 8.5% for 2012-13. The rate of interest was 8.25% in 2011-12.

An EPFO trustee, KE Raghunathan, who represents employers, said the speed with which the ministries of and finance have cleared the interest rate is really appreciable, considering the dire need for in the hands of employees and it will help them meet expenses such as educational needs of their children. In 2020, the EPFO had lowered the interest rate on provident fund deposits to a seven-year low of 8.5% for 2019-20, from 8.65% in 2018-19.

Editor’s note: Forced savings such as the premiums of life insurance policies and the deduction of provident funds from workers’ salaries are seen as support systems for one’s post-retirement age, which is why the move may be politically fraught. On the other hand, economists argue that the EPF rate is abnormally high, which defies banking realities and the prevalent rates of lending and borrowing in the market, due to which state resources are diverted and this puts undue pressure on the exchequer.

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