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Amidst reports that the Employees’ Provident Fund Organization (EPFO) is looking to reduce its interest rate leading to lower returns for salaried people, Congress leader Priyanka Gandhi Vadra issued a statement saying that when the unrest in the country grows, it must be understood that the government is slyly planning to shock the people with some drastic decision which isn’t in their favour.
She made the statement on Twitter, sharing an article that reported the EPFO’s decision to reduce the interest rate on provident funds by 15 – 20 basis points this fiscal.
https://twitter.com/
जब देश में जगह-जगह पर तनाव ज्यादा बढ़ जाए तो समझ लीजिए कि सरकार छुप-छुप कर कोई बड़ा झटका देने वाली है।
भारत के कर्मचारियों की मेहनत की कमाई पर ब्याज मिलता है, अब भाजपा सरकार उस पर कैंची चलाने वाली है।
क्या इसी को “अच्छे दिन” कहते हैं?https://t.co/0HsY2CZyCY
— Priyanka Gandhi Vadra (@priyankagandhi) January 7, 2020
If the EPFO, which comes under the Ministry of Labour, goes ahead with the decision of rate cuts, more than 8 crore EPFO shareholders will get less interest than before. This decision of the rate cut comes against the backdrop of the economic downturn, lower yields for debt market instruments, government securities and fixed deposits.
First of all, every employee must keep in mind to tender an official resignation and make sure it is accepted by their employer, before joining a new firm. In the case of Suresh Kumar, who spoke to ET Now and did not follow a proper procedure while switching jobs, accessing his EPF became a nightmare. As per EPFO rules, unless an employee exits his job, he can neither transfer nor withdraw his EPF.
Even partial withdrawals from the EPF were not allowed to Suresh and he could not access his EPF passbook as the account was linked to the mobile number provided by his previous company. Updating EPFO details meant contacting his previous employer. He did so and the previous company asked him to pay one month’s salary in lieu of his one month notice period to access his EPF. It must be kept in mind to always give personal email ids and contact numbers to avoid any such circumstance.
The EPF currently offers a rate of return of 8.65 percent per annum which is one of the best ways to steadily build a retirement corpus. While some think the rate cut is a good move as it is allows more take-home salary thus aiding more spending and boosting consumption, industry experts say it can be a detrimental move in the long run.
They say while the earlier generation placed a little more focus on saving, the millennial generation, if finds it unable to meet their demands, do not hesitate to borrow putting them at risk of financial turbulences. Also, the shift from the joint family system towards single family structures makes it very important to ensure financial security at the time of retirement.
Financial experts feel that though putting more money in the hands of the people will solve short term problems by boosting consumption, it would be wise to switch back to making higher contributions to their EPF accounts, helping them save more for future needs.
The Economic Times also explained that contribution towards PF qualified for tax benefits. Lesser contributions towards the PF meant much lesser tax benefits. For example, if annual contributions towards PF fall by Rs. 7,200, then for someone paying tax at the highest slab – 31.2 percent, he / she will save nearly Rs. 2,250 lesser tax.
Government officials had told Livemint in June that there was “no logic to penalize the working class” by lowering their yield.
While the EPF ensures a good amount on retirement, if the proposal to cut contribution rates goes through, experts advise professionals to explore alternative investment avenues like equity mutual funds and public provident funds (PPF) to create a retirement corpus.
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