Trade Unions called upon people to condemn the Employees’ Provident Fund Organisation (EPFO) decision to reduce EPF deposit’s interest rates to 8.1 percent which is the lowest rate in over four decades. The All India Trade Union Congress (AITUC) called for widespread protest against this during the all-India strike on March 28 and March 29, 2022.

On March 12, the Labour and Employment Ministry called a meeting of its Central Board of Trustees wherein Minister Bhupendra Yadav and other ministers recommended an 8.10 percent annual rate of interest to be credited on EPF accumulations in members’ accounts for the financial year 2021-22.

According to a department press release, the interest rate recommended is a result of combined income from interest received from debt investment and income realized from equity investment.

“This enabled EPFO to provide a higher return to its subscribers and still allowed EPFO with a surplus to act as a cushion for providing a higher return in the future also. There is no over-drawl on the EPFO corpus due to this income distribution,” said Yadav in the statement.

Further, he said the EPFO’s assured fixed return approach, announced by CBT every year along with the tax exemptions, makes an attractive savings option for PF members. However, the AITUC argued that reducing the interest rate amounts to reducing the protection offered by PF accumulations in old age. This will affect all senior citizens who depend on the interest on their savings to support themselves.

AITUC General Secretary Amarjeet Kaur said, “All employee representatives in the Central Board of Trustees demanded continuation of 8.5 percent as the rate of interest on accumulations in employees’ accounts for the [financial] year ending March 31.”

The Ministry said that EPFO has been able to give a higher rate of interest on retirement savings in comparison to other available investment options because it invested in long tenure high yielding securities for the past several decades. This ensures that the returns on EPFO’s investments are higher even when the yields have been steadily coming down in the past decade.

Still, trade unions pointed out that the government needs to contribute to social security funds and take care of various sections of people like the farming community and unorganised sector workers.

“No amount of playing around with financial markets will help the crores of toiling people, who are rightfully demanding their share in the National Wealth, which they alone produce,” said Kaur. She said that the government will be abdicating its responsibility to provide social security to industrial workers and leave them to “the vagaries of financial markets”. Therefore, the AITUC rejected the so-called actuarial calculations put forth by the Ministry to justify the reduced interest rate.

While the Labour Ministry agreed to form a committee with representatives of employees to look into the aforementioned calculations, the trade union warned that the recommendation for an 8.1 percent interest rate will be forwarded to the Finance Ministry.

The union will demonstrate against this amidst decrials of the four labour codes and other pro-corporate policies pushed by the government recently.

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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/priyankagandhi/status/1214531792901787648

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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Image Courtesy: business-standard.com

After the Employee Provident Fund Organisation (EPFO) made it made it mandatory to link the Aadhaar card with individual Provident Fund accounts, a bunch of technology and back office companies turned to the government for relief, The Economic Times reported.

The companies, seeking help on the clarification of norms, approached the labour minister Suresh Kumar in Bengaluru last week, saying that the company was struggling to implement the mandate.

An executive from tech major Hewlett Packard (HP) said, “Employees are claiming that they will not give Aadhaar number for EPF as per the Supreme Court order. The EPFO, on the other hand, wants us to collect the number,” said the executive at the meeting.”

“Many of our employees are citing the SC judgment that said any such linking is optional,” he added.

In September 2018, the Supreme Court had ruled that Aadhaar wasn’t mandatory for pension schemes. The SC bench while upholding the constitutionality of the Aadhaar Act, had then said that Aadhaar can’t be made mandatory for the delivery of many public services including pension.

Last month, the Bombay HC had granted ad interim relief from prosecution to JP Morgan Services India Private Limited, after a criminal complaint by the EPFO for not sharing the Aadhaar link and bank account details of their employees.

What EPFO says

The EPFO points to a notification by the Unique Identity Authority of India (UIDAI) allowing the use of Aadhaarbased authentication for employee provident funds accounts. Additional Central PF Commissioner Pankaj Raman of the Employee Provident Fund Office (EPFO) in New Delhi cited a November 2018 notice on the matter.

Inc42 reported, in March 2018, a data breach through Employees’ Provident Fund Organisation (EPFO) also came to light via a letter circulated on Twitter. The letter titled ‘Secret’, which was addressed to the CEO of Common Service Centre, claimed that hackers exploited vulnerabilities through a government’s online website built to link Aadhar with PF account to steal data. This data breach is expected to have discouraged the employees to provide Aadhaar details to EPFO.

The way forward

A software professional, Elisha Ebenezer is also challenging the notification which has mandated linking of Aadhaar to Universal Account Number (UAN) for availing pension and provident fund benefits in the Madras High Court. He further believes that EPFO’s notification is unconstitutional and against SC directives.

While employees from tech companies said that their companies were planning to take disciplinary action against them for not linking their Aadhaar numbers with their PF accounts, it has come forth that employers are unable to contribute to a PF account as the EPFO isn’t allowing the company from creating a PF account in the absence of Aadhaar.

While companies on their part are trying to ease out things for its employees, EPFO   suggests that they would introduce a facility that will facilitate employees to create the universal account number (UAN) on their own and link it with the Aadhaar. “This will remove apprehensions among employees as they do not have to part with the Aadhaar number,” an EPFO official told ET.

The official, who did not want to be named, added that the EPFO does not keep a database of Aadhaar numbers but it is used only to authenticate the credentials of the employees on the UIDAI database.

In February this year, a five-judge constitution bench had held that while Aadhaar would remain mandatory for filing of I-T returns and allotment of Permanent Account Number (PAN), it would not be mandatory to link Aadhaar to bank accounts and telecom service providers cannot seek its linking for mobile connections.

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