Huge Loss For Provident Fund Subscribers: Interest Rate Drops To 8.1%, Lowest In 42 Years!

By Shreya Bose Last updated Mar 13, 2022

The last time the annual return on EPF savings was this low was in 1977-78.

The return on workers’ retirement savings with the Employees’ Provident Fund Organisation (EPFO) has been cut to 8.1% for 2021-22.

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Lowest In 45 Years

The rate used to be 8.5% which would be credited to EPF members’ accounts in the last two years.

At 8.1%, EPFO will have to pay Rs 76,000 crore as interest to its subscribers for 2021-22, giving it a marginal surplus of Rs 450 crore.

The last time the annual return on EPF savings was this low was in 1977-78, when the rate was 8%.

But even that was the highest EPF rate at the time since the EPFO’s inception in 1952.

Approval From Finance Ministry Needed

Since then the EPF rate has been lower than 8.5% in three years — 1979-80, 1980-81 and 2011-12 — when an 8.25% return was paid on balances.

The 8.1% figure was recommended by the Central Board of Trustees (CBT) at its meeting in Guwahati on Saturday.

The rate will have to be approved by the Finance Ministry before it is notified and credited to members’ accounts.

Rate Higher Than SBI FD Rates

Central trade union representatives on the board protested the cut in the EPF rate since it was being done at a time when inflation is resurging.

They called for the 8.5% return to be retained.

Labour and Employment Minister Bhupender Yadav who had chaired the meeting said that he feels good to announce the new rate at a time when a 10-year fixed deposit with the SBI yields just around 5.4%

In contrast, returns on savings instruments like the Public Provident Fund are in the range of 6.8% to 7.1%.

Why The Rate Was Cut

He said after the meeting that the board had chosen to keep social security goals in mind with the investments in view of the international situation and the [volatile] condition of the stock markets.

“We cannot invest in high–risk instruments, we are looking at stable returns for social security needs,” he said.

Offloading Ahead Of Ukraine Crisis

K.E. Raghunathan, an EPFO trustee and a member of its Board’s Finance and Investment Advisory Committee said that the 8.1% rate became feasible despite the volatile markets because the EPFO’s fund managers had offloaded some of its equity and bond holdings before the Russia–Ukraine war..

EPFO redeemed ETF investments in the current quarter and fetched capital gains of Rs 5,400 crore ahead of the Ukraine invasion.

Normally, they are liquidated in the last month of the financial year.