Improvident fund: Allow voluntary migration to NPS

The 9.5% rate of interest announced on employees’ provident funds is a double indictment of the scheme as it stands, not a reason for cheer as the labour minister and the unions would have us believe. True, it is an improvement over the 8.5% that the EPF Organisation has been paying out these last five years.

But it is a ridiculously low rate of return compared to what is achievable by efficient investment of a corpus as large as Rs 1,70,000 crore, large enough to be diversified across asset classes to minimise risk and maximise returns.

And the manner in which the EPFO is financing its higher payout — a surplus that a newly exposed accounting error had hidden away in the interest suspense account — is acidic testimony as to how efficiently employees’ savings are administered. Huge amounts collect in suspense accounts because the law forces people to sequester a fifth of their earnings into the EPF but the Fund’s management is so opaque and bureaucratic that hundreds of thousands of poor workers are incapable of taking their money out of the Fund. This is criminal. That criminality is now financing the higher returns that warm the cockles of our labour aristocracy’s hearts.

It is time this entire sorry arrangement was wound up and workers’ savings entrusted to professional management . Luckily, a professional arrangement does not have to be invented anew. It already exists in the form of the New Pension System (NPS), supervised by the Pension Fund Regulatory and Development Authority. The NPS allows workers to choose their fund manager, as well as the risk profile of the allocation of their savings to different investment instruments, enjoy regulatory oversight, pay the lowest fund management and record-keeping fees in the world and enjoy superior returns.

If winding up the EPFO and merging it with the NPS is thought to be too drastic, amend the law to allow voluntary migration of individual workers from the EPFO to the NPS, which managers the pensions of post-2003 recruits to the civil service. Forcing workers to accept suboptimal returns on their savings is a crime against the aam admi.