Trustees’ board to consider panel’s views on July 30
In keeping with market realities, the finance and investment panel has asked the EPFO to maintain an 8% interest payout for FY06.
By Prabha Jagannathan, TNN |
NEW DELHI: In keeping with market realities, the finance and investment panel has asked the EPFO to maintain an 8% interest payout for FY06. Earlier, the EPF���s own assessment for FY05 had concluded that only an 8% interest payout can be made based on earnings from investments.
Despite that, an interest rate of 9.5% for ���04-05 was approved by the board, thanks primarily to a prior pre-poll commitment made by PM Manmohan Singh.The decision spelt a deficit of Rs 716.1 crore. The board decided to make up by dipping into the Special Reserve Fund (SRF), despite trade union opposition and depleting its reserves to just over Rs 200 crore.
Insulating the decision on EPF interest rates against political considerations and basing it solely on the market would be the only long-term solution possible, experts feel, at this pass in the EPF���s fund-crunched state.
The finance ministry has yet to ratify the 9.5% interest rate for ���04-05, insisting that the EPF first chart a long-term solution course to its financial problems vis-��-vis artificially boosted interest rates to subscribers.
The recommendation of the investment panel will be taken up by the CBT at its meeting on July 30 here. That meeting is expected to clinch the interest rate for this year, even while a ratification by the finance ministry for the 9.5% interest rate approved by the CBT for ���04-05 lies pending.
There were already strong indications, as far back as in May, that the Fund is likely to stick to a
In its special meeting held on May 28, ���05, resolved that the interest payment liability, in no case, should exceed the interest income of the Fund during that particular year. That could be the one issue that the Fund will fall back on to defend any decision this year to stick to its earnings strictly in deciding the level of interest pay-out to subscribers.
As per the EPF and Miscellaneous Provisions Act, 1952, employers and employees contribute at a rate of 12% each of the basic wages of employees. Of the employer���s contribution, 8.33% is diverted to the Pension
Fund for providing pensionary benefits to the subscribers and their families and the balance 15.67% is deposited in the Provident Fund. The outstanding amount cannot be diverted for any other purpose.
Despite that, an interest rate of 9.5% for ���04-05 was approved by the board, thanks primarily to a prior pre-poll commitment made by PM Manmohan Singh.The decision spelt a deficit of Rs 716.1 crore. The board decided to make up by dipping into the Special Reserve Fund (SRF), despite trade union opposition and depleting its reserves to just over Rs 200 crore.
Insulating the decision on EPF interest rates against political considerations and basing it solely on the market would be the only long-term solution possible, experts feel, at this pass in the EPF���s fund-crunched state.
The finance ministry has yet to ratify the 9.5% interest rate for ���04-05, insisting that the EPF first chart a long-term solution course to its financial problems vis-��-vis artificially boosted interest rates to subscribers.
The recommendation of the investment panel will be taken up by the CBT at its meeting on July 30 here. That meeting is expected to clinch the interest rate for this year, even while a ratification by the finance ministry for the 9.5% interest rate approved by the CBT for ���04-05 lies pending.
There were already strong indications, as far back as in May, that the Fund is likely to stick to a
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realistic rate of interest for this year. These came at the last just CBT meeting here to clinch the rate for ���04-05. In its special meeting held on May 28, ���05, resolved that the interest payment liability, in no case, should exceed the interest income of the Fund during that particular year. That could be the one issue that the Fund will fall back on to defend any decision this year to stick to its earnings strictly in deciding the level of interest pay-out to subscribers.
As per the EPF and Miscellaneous Provisions Act, 1952, employers and employees contribute at a rate of 12% each of the basic wages of employees. Of the employer���s contribution, 8.33% is diverted to the Pension
Fund for providing pensionary benefits to the subscribers and their families and the balance 15.67% is deposited in the Provident Fund. The outstanding amount cannot be diverted for any other purpose.
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