PF new rule: EPFO mulling measures to offer consistent interest rate on 65 million provident fund deposits; how it works | Mint
Source: Live Mint
PF new rule: Your Provident Fund (PF) contributions may earn a stable interest soon as the government is considering creating an interest stabilisation reserve fund for the Employees’ Provident Fund Organisation (EPFO).
According to a report by The Economic Times quoting officials in the know of the matter, over 65 million EPFO subscribers are set to benefit from the move with the labour and employment ministry commissioning an internal study.
Based on the study results to mobilise an interest stabilisation reserve fund, EPFO subscribers may get consistent interest rates irrespective of what the retirement body earns as the return on investments.
This move of the EPFO is aimed to ‘shield’ its subscribers from market fluctuations.
“Once such a reserve is created, EPFO subscribers will get a steady interest on their provident fund deposits,” an official was quoted as saying.
The EPFO earns returns by investing across an array of instruments, including exchange traded funds. The interest for a particular quarter is decided based on the returns on these investments.
EPFO interest stabilisation reserve fund: How will it work?
The EPFO is likely to set aside the surplus it earns from interest every year and create a reserve fund. This fund can be used to make sure that subscribers earn a sustained interest rate on their provident fund even if the retirement body’s interest income gets negatively affected in a particular period.
The move will supersede any stock market fluctuations, helping prevent any “disproportionate rate cut” or a hike in the interest rate, another official was quoted as saying in the ET report.
When will new EPFO rules come into effect?
As per the report, the discussions are still at a preliminary stage and could be solidified towards the end of this year. The new EPFO rule is likely to be implemented from 2026-27 once the plan gets a green signal from its highest decision-making body.
The central board of trustees of the EPFO, headed by the minister of labour and employment, is expected to meet and discuss this matter.
EPFO interest rates
EPFO interest rates have fluctuated over the years. For FY23-24, the EPFO fixed an interest rate of 8.25 per cent for its members. The retirement body is likely to maintain these rates for FY24-25 during a meeting of its central board of trustees (CBT) on February 28.
Over the years, EPFO rates have increased from 3 per cent in 1952-53 to a maximum of 12 per cent in 1989-90. The 12 per cent interest rate was in place till 2000-01, after which it declined to 9.5 per cent in 2001-02. It further declined to touch a low of 8.1 per cent in 2021-22, followed by a minor increase to 8.25 per cent.
