This is the lowest interest rate for employees’ retirement funds since 1977-78. The interest rate for employees’ provident funds in that year was 8%.

New Delhi: The interest rate on employee provident funds (EPF) deposits was reduced to 8.1% from 8.5% for the last year, a drop of four decades.

This is the lowest interest rate for employees’ retirement funds since 1977-78. The interest rate for employees’ provident funds in that year was 8%.

According to a statement from the labor ministry, the Central Board of Trustees (CBT), which met in Guwahati under Bhupendra Yadav’s chairmanship, recommended an 8.1% interest rate.

It stated that the Central Board had recommended an 8.1% annual rate of interest on EPF accumulations in members’ accounts for the financial years 2021-22 (ending March 31, 2022).

Now, the recommendation will be sent to the Union Finance Ministry. It will be notified once approved.

The statement stated that the interest rate would be officially notified in the government gazette, and EPFO would credit it into its subscribers’ accounts.

In 2020-21, the EPFO paid its subscribers an 8.5% interest rate. This is the same rate as the previous year. In 2018-19, the EPF rate was 8.65%, and in 2017-18 it was 8.55%. The EPF interest rate stood at 8.65% in 2016-17.

After paying 8.1%, the EPFO has a surplus amount of Rs. 450 crore. Representatives of employees wanted higher interest rates, but the CBT settled at 8.1%.

According to sources, interest rates are determined based on the earnings from retirement funds bodies on their deposits. The corpus has increased by 13%, but the interest income has risen only 8%.

CBT members stated that the interest rate setting is reflective of the Indian economy as well as the difficulties the EPFO has in generating returns from large corpora.

The EPFO invests approximately 85% of its annual accruals into debt instruments, including bonds and government securities, and 15% equity via ETFs. To calculate the interest payment, both equity and debt earnings are used.

Although the labor ministry did not provide reasons for the interest rate reduction, it stated that “the Employees Provident Fund Organization (EPFO), despite its conservative investment approach, has consistently generated high returns over many years which have enabled it to distribute higher interest rates to its subscribers through various economic cycles with little credit risk.”

EPFO decided to liquidate a portion of its equity investments for FY 2022. The recommended interest rate is the sum of both equity and debt investment incomes. EPFO was able to offer a higher rate of return to subscribers, while EPFO still had a surplus that could cushion future returns. This income distribution ensures no excess draw on the EPFO corpus.

The EPFO has sold equity investments in ETFs worth Rs 12,785 crore and will use its capital gains to pay FY22 EPF interest. This investment had an annualized rate of return of 13.91%, which is the highest over the past three years.

The board also approved the decision to redeem nonconvertible Air India debentures in EPFO’s portfolio. The statement stated that this redemption had enabled EPFO to realize Rs 8,944.32 Crore against Rs 7,772.50crore face value.

The CBT approved the budget estimates for 2022-22 and 2020-21 for EPFO schemes during the meeting.

The board ratified the extension in tenure of External Concurrent Auditors, Custodian, and tenure of SBI MF, UTI MF, as ETF manufacturer, until March 31, 2022, or until appointments are made whichever comes first.

According to the statement, it decided to increase welfare funds for cultural and sports activities, among other decisions. It stated that five percent of the vacancies in the sports quota would be filled with qualified candidates and that objective criteria for filling these positions would be established.

The board approved the Adhoc committee’s recommendations on coverage and related litigation. This will ensure that all people covered under the EPFO social security programs have universal coverage up to the wage limit. It also agreed that gig and platform workers would be covered by social security.

The board approved the Adhoc Committee on Pension Reforms’ recommendations to form the task force of experts in pension and social security to recommend possible ways to increase the benefits of the EPS-95.

The task force will consist of members from PFRDA and LIC, VVGNLI, two independent actuaries, chief investments officers of certain worthy investment houses/mutual funds houses, financial experts, or any other expert.

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