EPF reforms get support from unexpected quarters

After feeling the pinch of declining interest rates on EPF paid to all workers of trade unions and an ever-present threat of a downward revi...

After feeling the pinch of declining interest rates on EPF paid to all workers of trade unions and an ever-present threat of a downward revision, the Left parties are the latest votary of reforms in the sector.

The Left, which has so far been opposed to anything but safe investments in government funds as the answer to their idea of a social security net for millions of workers, have now begun to see reason to move on to some pension reforms and a better and high return system.

In fact, leaders from Left parties and their trade unions say that investing in market instruments and equity to maximise returns could not be such a bad idea after all 8212; provided these are made prudently with 8216;8216;safety8217;8217; as the bottomline.

Speaking to The Indian Express, CPM leader in the Rajya Sabha Nilotpal Basu said: 8216;8216;The entire interest regime on EPF has to be revisited. We agree that a new scheme should be worked out and theoretically there are no two opinions that different investment instruments need to be explored even within the EPF. If investments in the market and equities are prudent and have adequate safeguards to protect workers8217; interests, the Left does not carry any brief to oppose these.8217;8217; CPIM backs the largest workers8217; trade union the CITU.

Basu8217;s thoughts are echoed by Sanjeeva Reddy who heads another large trade union 8212; the INTUC. 8216;8216;The quantum of pension that is available to a worker when he retires has to be raised so as to help him survive in his old age,8217;8217; says Reddy. 8216;8216;Professional fund managers should be appointed for better investments 8212; in government securities, markets and why not even equity.8217;8217;

This is a stark shift in stance by the Left parties which have hitherto stuck to their guns that equity markets are a strict no-no for investing employees8217; provident fund kitty. Encouraged by the right noises from the Left, the Labour Ministry has started thinking aloud on mooting a proposal to start with investing a miniscule amount on equity markets to experiment with better returns on the EPF funds.

While a section of Left unions have decided to 8216;8216;experiment8217;8217; by putting a fraction of their Provident Fund investments in the stock market, sticking to its old stand is CITU chief W Wardharajan. Says Wardharajan: 8216;8216;How can any risk be taken on old age security funds for workers by putting it in the stock market? This is fraught with risk 8212; just as you can make money, you can also lose large sums. This is something nobody can take a chance with. It is the government8217;s duty to ensure a real rate of return of at least 4 to 4.5 per cent above the inflation rate for all funds meant for social security of workers.8217;8217;

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The NDA government had set in motion a New Pension Fund Scheme for all new entrants into government service. In the first phase, this was made applicable to central government employees joining after January 1, 2004, who would contribute 10 per cent of their salary into a pension fund account with the government also putting in a matching contribution. This was later supposed to be made applicable to the private sector, workers in the organised and the unorganised sector.