| Sahib Singh Verma in Delhi. (AFP)
New Delhi, May 31: Succumbing to political compulsions, the Centre today decided to continue paying out 9.5 per cent return on workers’ investments in the Employees Provident Fund, the country’s largest pension fund.
The rate of interest was officially lowered to 9 per cent from last year’s 9.5 per cent. But a meeting of the trustees of the fund decided to award a half per cent bonus to investors in the over Rs 1,12,000 crore fund, keeping the rate of return intact at least for this financial year.
Labour minister Sahib Singh Verma said: “We are giving a bonus because this is the golden jubilee of our fund.”
Verma had been under intense but contrary pressures the last few months. While the finance ministry wanted him to cut the payout to 8-8.5 per cent, BJP MPs had been pleading that a reduction in earnings from the fund could see the party losing crucial labour votes in poll-bound Delhi, Rajasthan, Madhya Pradesh and Chhattisgarh.
Verma himself represents outer Delhi, a labour-dominated constituency, and the decision makes good political sense for him. This is the second year in succession that the trustees have resisted pressure from the finance ministry to cut the rate in line with the soft monetary climate.
The finance ministry has been urging EPF trustees since last year to cut its rate. However, the fund has resisted such calls, saying it could afford the payout. Recently, even a special finance sub-committee set up by the trust board had echoed the finance ministry’s advice, recommending a rate between 8.5 and 9 per cent.
Earlier this year, in a bid to slash its interest burden, the finance ministry reduced return on government securities, including the special deposit scheme (SDS) in which about 80 per cent of the provident fund’s money is invested.
Interest on SDS was set at 8 per cent, far lower than the payout from the provident fund, and it was this decision that prompted the ministry to ask the fund to lower its rates.
The remaining 20 per cent corpus of the fund is invested in other government and state-run corporation bonds and instruments which fetch a higher rate of interest. Verma said that even after paying out interest at the rate of 9 per cent, the fund would be able to save about Rs 25 crore from its earnings.
The fund is fed by workers’ savings as well as contributions from employers and hefty surpluses from previous years.
This year’s bonus will be paid by dipping into a contingent liability fund of Rs 2,100 crore which, through a bit of financial jugglery, has now been transferred to the interest surplus account, a fund which is supposed to add to the total corpus of the EPF.
Shankar Saha, a trustee on the EPF board, said: “It’s quite legitimate. This money is surplus and we are giving it to our members as a bonus.”
The bonus will, however, be for just one year and the rate of return is slated to come down to 9 per cent from next year onwards.