Financial Daily from THE HINDU group of publications
Tuesday, Jul 20, 2004
Industry & Economy
Decision on PF interest rate EPFO trustees to meet again today
New Delhi , July 19
THE Central Board of Trustees of the Employees Provident Fund Organisation (EPFO) will meet again on Tuesday to decide the rate of interest to be paid to provident fund subscribers for fiscal 2004-05.
Last Tuesday, the board meeting remained inconclusive with the Left trade unions demanding that the Labour Minister, Mr Sis Ram Ola, lead a labour delegation to meet the Prime Minister, Dr Manmohan Singh, seeking budgetary support for paying higher interest rate. According to a member of the trustees board, ever since the EPF scheme was started in the 1950s, no Government support had ever been received by the EPFO for paying interests.
However, according to EPFO sources, the extent to which EPFO is able to protect workers interest needs to be examined as it is found that majority of subscribers withdraw their provident fund money while in service though it is essentially considered to be a retirement benefit.
A segment-wise analysis of EPFO members' savings, undertaken by EPFO, shows that 92.88 per cent of the 3.94 crore members have balances below Rs 50,000 and 84.58 per cent of the members have balances below Rs 20,000. The average balance in the less than Rs 20,000 category is Rs 3,133. The average balance in the category between Rs 20,000 and Rs 50,000 is Rs 40,468 per member.
According to EPFO officials, the above analysis suggests two clear trends. The first is that the bulk of the members draw and utilise their EPF funds during their working life and balances are not being built up as a retirement savings. The second reason is repeated job-hopping, whether voluntary or involuntary, which leads to dissipation of EPF balances.
Members choose to take final settlement at the point of a job change instead of asking for a transfer of account, which is the required procedure, according to Labour Ministry officials. They said that almost 90 per cent of the final settlements are resignation cases and not superannuation cases where the job change is not disclosed to the EPF.
Lack of a nationally unique social security number facilitates this unhealthy trend that is inconsistent with the legislative intent behind the statute. Officials also pointed out that the Finance Ministry is yet to notify the rates of interest payable for fiscal 2002-03 and 2003-04 for which the board has already sent its recommendations last year and the year before.
According to officials, the Labour Ministry is trying to persuade the Finance Ministry for an early notification as the interest earnings for the last two fiscals are still lying in the reserve account and have not yet been credited to the members' accounts.
According to a trustees' board member, Tuesday's meeting too may remain inconclusive as neither the Finance Minister nor the Prime Minister have responded to the demands of higher interest made by the Leftist trade unions.
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