The Hindu : National : No bailout, EPFO board may suggest lower rate

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Saturday, May 28, 2005

National

National

No bailout, EPFO board may suggest lower rate

Staff Correspondent

Meeting likely to be stormy Any decrease from 9.5 per cent will not only mean backing out of the Prime Minister's commitment but also draw the wrath of trade unions.

NEW DELHI: Saturday's meeting of the Employees Provident Fund Organisation (EPFO) here is likely to be stormy with its Central Board of Trustees expected to suggest a lower rate of interest for 2004-05 as against 9.5 per cent announced by Finance Minister P. Chidambaram in February.

The Labour Ministry expressed its inability to pay 9.5 per cent on EPF accumulations to 40 million subscribers unless the Finance Ministry came to its rescue.

The Finance Ministry has outright rejected any bailout package and asked the EPFO to meet its liability from its own resources to fulfil the commitment, made at the behest of and ratified by the Prime Minister.

An interest rate of 8.5 per cent would leave the EPFO with a surplus of Rs. 8 crores from an income of Rs. 6,168 crores earned up to March 31, 2005 as against the projected income of Rs. 5,919 crores. The deficit actually starts at 8.7 per cent and giving interest at 9.5 per cent on the EPF accumulations would leave the board with a deficit of Rs. 927 crores for 2004-05.

But any decrease from 9.5 per cent would not only mean backing out of the Prime Minister's commitment but also draw the wrath of trade unions, which have been campaigning for a higher rate for the EPF subscribers. They have also been contesting the EPFO's claims on low returns, saying sufficient funds are available to give a higher interest. Employers have been arguing that the rate should be based on the returns accruing to investments. The board's second option is to ask the Finance Ministry to "reconsider" its decision not to provide financial back-up to the EPFO.

Pension scheme

Another tricky issueis theemployees pension scheme reform on the basis of the actuaries report for March 2004, which has recommended raising of the pensioner's age from the 58 to 60 and that the interest rate on cash withdrawal be market-linked Now the rate on withdrawals is fixed at 10 per cent. The report also suggests that the pensionable salary be linked to the wage ceiling. In the present system, it is the average of last 12 months' salary.

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