EPFO interest rate for 2017-18 at 5-yr-low of 8.55%; FinMin clears proposal

The finance ministry on Thursday approved for 2017-18 an interest rate of 8.55 per cent on provident fund savings administered by the Employees’ Provident Fund Organisation (EPFO) for around 200 million formal sector workers.

“The finance ministry has approved the interest rates according to the decision taken by EPFO's central board of trustees. However, they have also given us some suggestions informally,” a senior labour ministry official said.

The EPFO trustees, headed by Minister of State for Labour and Employment Santosh Gangwar, had announced at a meeting on February 21 a five-year-low interest rate of 8.55 per cent for 2017-18. EPFO had paid returns of 8.65 per cent on provident fund savings for the previous year, and 8.8 per cent in 2015-16. In the two preceding years – 2013-14 and 2014-15 – the interest rate for EPFO subscribers had stood at 8.75 per cent.

However, with rates of all small savings schemes, including the Public Provident Fund (PPF), going down in the past year, EPFO’s return of 8.55 per cent is still the best rate. In December, the government had cut rates on small savings schemes by 20 basis points.

The finance ministry's consent came over a month after it wrote to the labour ministry raising a few questions over the EPFO trustees’ decision to give 8.55 per cent interest rate in 2017-18.

Apart from asking EPFO to keep a higher surplus, it had also recommended creating a reserve fund to ensure the government did not have to fund the losses in case EPFO “mismanaged” its investments. However, the labour ministry has so far not agreed to the suggestions given by the finance ministry. In fact, EPFO had responded to the finance ministry saying it had never run into losses and was not required to keep a surplus under the Employees’ Provident Fund and Miscellaneous Act, 1952.

Even then, at 8.55 per cent interest rate, the EPFO will retain a surplus of Rs 8.5 billion. EPFO has been keeping a portion of its income as surplus of income over liability.