Work for working class

The Employees Provident Fund Organisation board, as we reported yesterday, wants State Bank of India, its fund manager, to explain low returns. EPFO should question itself. Only recently trade union leaders were asking for high rates; market interest rates were low then. TU leaders are now benchmarking with market rates and asking why returns are low. You can8217;t have the cake and eat it. But you can sharpen the knife. The dissatisfaction with EPFO returns should become a context for cutting through a lot of clutter. Of course, SBI shouldn8217;t be a monopoly fund manager. The EPFO Act of 1952 was written when Indian finance was, to put it mildly, very different. Today8217;s PF contributors have every right to benefit from the market8217;s many options.

There8217;s some progress. The Coal Miner8217;s Provident Fund conducted an auction recently to recruit the cheapest fund manager. EPFO can use a similar procedure to recruit, say, four fund managers. Initially, assets can be divided equally 8212; 25 per cent in the hands of each manager. Quarterly performance reviews should happen and a certain proportion of assets should be reallocated from weak funds to the better ones. That will keep the competition going.

The other area requiring a sharp intervention is EPFO8217;s weak investment guidelines. Just staying invested in government bonds is not just unintelligent, it means disrespecting the workers8217; trust. Their money deserves better treatment 8212; investment in diversified index funds and corporate bonds, for example. There8217;s a lesson here for those opposing pension reforms, especially since many of those blocking the New Pension Scheme NPS at the Centre are the same people wanting higher EPFO returns. If you want to protect ordinary employees, the best you can do for them is to make their money travel. High returns are especially crucial for those who can invest modest amounts in PF/pension schemes. If EPFO trustees can question SBI8217;s imaginative monopoly, why can8217;t NPS have a substantial equity investment option?