January 22, 2011 12:43:36 am
Amember of the EPFOs chief decision making body the Central Board of Trustees has joined the finance ministrys demand to roll back the decision to give a 9.5 per cent interest rate on retirement savings in 2010-11.
The All India Organisation of Employers (AIOE),which is a member of the CBT and was a part of the decision to pay the additional one per cent interest,has written to finance minister Pranab Mukherjee seeking a review of the decision on the grounds that private provident fund trusts would be unable to match the interest rate.
The All-India Organisation of Employers,which is a member of the countrys apex employer federation the Council of Indian Employers,consists of over 50 regional associations of employers and chambers of commerce and nearly 150 companies.
The CBT have taken the decision on the basis of a likely surplus of Rs 1,731 crore in the interest suspense account,accumulated since 1952,but the privately managed exempted/approved PF trusts who are already following the accrual based accounting system are not in a position to generate this type of a windfall surplus to pay the hiked interest, KK Bangur,president of the AIOE has written to the finance minister.
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Pointing out that the EPFOs surplus was accrued over a period of 58 years,Bangur has said that many trusts which were set up three to five years ago would not have been able to generate such additional funds.
In his letter,a copy which is with The Indian Express,Bangur has also pointed to the strict investment pattern for provident fund trusts and has made a case for allowing investments into equities to generate higher interest rates. There is no sufficient opportunity,flexibility available to increase the earnings from investments, he has said.
Although the finance ministry eased rules and permitted retirement funds to invest 5 per cent of their corpus in equities in 2005,and raised it to 15 per cent in 2009,the EPFO abides by the norms laid down in 2003 that prohibit any investments in equity. As a result,the provident funds can only invest in government and corporate debt.
As private PF trusts invest nearly half their corpus in the Special Deposit Scheme of the government of India that gives just an 8 per cent interest,Bangur has further written that they find it difficult to pay even the stipulated 8.5 per cent interest rate to its members.
While the CBT had in September last year declared a 9.5 per cent interest rate on retirement savings for 2010-11,nearly 3,000 privately managed PF trusts have been scrambling to match the returns. They had earlier lobbied with labour minister Mallikarjun Kharge and labour ministry officials to review the decision.
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