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EPFO cuts interest rate to lowest level in years

The decision to lower the interest rate, a widely watched working-class metric of savings, will not cheer the nearly 60 million active EPFO subscribers, for whom the provident fund is often one of the forced methods — the other is the premium they pay for life insurance and other insurances — to save funds for the post-retirement age

The government-run fund manager and a popular savings scheme for millions of salaried middle-class Indians, the Employees’ Provident Fund Organisation (EPFO), decided today that the provident fund deposits for 2021-22 will fetch an interest rate of 8.1%, a downward revision.

In the previous year (2020-21), the fund manager had kept the interest rate on savings steady at 8.5% but today’s downward revision is the lowest in years.

The decision to lower the interest rate, a widely watched working-class metric of savings, will not cheer the nearly 60 million active EPFO subscribers, for whom the provident fund is often one of the forced methods — the other is the premium they pay for life insurance and other insurances — to save funds for the post- age. At the same time, economists argue that the has no business forcing people to save money, especially by draining the exchequer with an ‘abnormally high’ interest rate, which pressures the government to extract revenue from other sources that, in turn, increase people’s cost of living. They say further that a citizen should be given the choice to live better in the present rather than spend the whole life worrying about old age.

However, the choice really does not exist as provident fund savings are mandatory under the Employees Provident Funds and Miscellaneous Provisions Act, 1952.

“In today’s meet, EPFO consensus has been that it will pay an 8.1% interest on deposits based on the current position of earnings and deposits of the organisation,” Virjesh Upadhyay, a board member of EPFO, said.

According to EPFO rules, at least 12% of an employee’s basic salary is compulsorily deducted to be saved in the provident fund while an employer co-contributes another 12%.

The Covid pandemic pressured EPFO’s earnings. EPFO delayed payments for 2019-20. This was paid in 2 instalments, deriving from 2 sources of EPFO’s investments: 8.15% from investments and 0.35% from equity portfolio.

Pressured earnings have forced the fund manager to revise downward the interest rates that are payable to depositors in some preceding years. For instance, during 2017-18, the organisation paid an 8.55% interest rate. In 2016-17, the interest rate was even higher at 8.65%.

According to the ministry’s latest provisional estimates of payroll data released on 22 January, 2022, EPFO added 13.95 lakh net subscribers during November 2021, an increase of 2.85 lakh net additions over the previous month of October 2021 with a rate of 25.65%.

The January 2022 update, which gave age-wise comparison of payroll data, shows the age-group of 22-25 years registered highest number of net enrolments with 3.64 lakh additions during November, 2021.

The age group of 18-21 also registered addition of nearly 2.81 lakh net enrolments. The age group of 18-25 years have contributed around 46.20% of the total net subscriber additions in November 2021.

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