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July 14 in History
Events and happenings on 14 July in History
14 July 2001
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14 July 2004
14 July 2005
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14 July 2006
14 July 2007
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Clarification on Rate of Interest on PF balances for the financial year 2004-05
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New Delhi: July 14, 2004
Reports have been appearing in the print media in relation to an option of
declaring a differential rate of interest for different categories of Employees
Provident Fund (EPF) members. It has been suggested that during the discussions
at the 168th meeting of the Central Board of Trustees (CBT) on 30.06.2004, such
a suggestion was considered. The proposition made out is that for the lower
income groups i.e., those with balances below Rs. 20,000/- as on 31.03.2004
which constitute about 85 per cent of the membership, a higher rate may be
recommended and for those in the higher income bracket who have balances above
this cut off, a lower rate be recommended.
It is clarified that no such discussion took place during the aforesaid meeting of the CBT and such a proposition was neither mooted nor considered. It is also clarified that as per Para 60 (1) of the EPF Scheme, 1952, interest is credited to each members account at such rate as may be determined by the Central Government in consultation with the Central Board. The word used is ‘rate’ and not ‘rates’. The same rate should be applicable to each member and hence a differential rate for members is not consistent with the scheme provisions.
All members, whether covered through mandate of law or in a voluntarily manner are indistinguishable once they become members. Those who are covered voluntarily have not been given the option of opting out.
Information Technology (IT) enabled analytical tools that are now available with EPF is an outcome of its modernization programme. These have enabled improved cuts of information from the existing data and this enables the Central Board to consider the issue with improved decision support systems and reports. A money segment analysis shows that 93 per cent of the total 3.94 crore members have balances below Rs. 50,000/- and 85.39 per cent of the total membership have balances below Rs. 20,000/-. The average member’s balance in the category below Rs. 20,000/- is Rs. 2,928/-. The average balance in the category between Rs. 20,000/- and Rs. 50,000/- is Rs. 41, 719/- per member. In aggregate for the 93 per cent of the membership i.e., those below Rs. 50,000/- the average balance is Rs. 6,203/-.
For the remaining 7 per cent of the membership in the bracket of Rs. 50,000/- to Rs. 50 lakhs and above, the average balance per member is Rs. 88,729/-.
The above analysis suggests two clear trends. The first is that the bulk of the members draw and utilize their EPF monies while in employment itself and balances are not being built up as a retirement saving to be received on exit from the workforce. The second is repeated job-hopping, whether voluntary or involuntary, which is leading to dissipation of EPF balances. Members choose to take final settlement at the point of a job change instead of asking for a transfer of account which is required procedure. 90 per cent of the final settlements are resignation cases and not superannuation cases where the job change is not disclosed to EPF. Lack of a nationally unique social security number facilitates this unhealthy trend, which is inconsistent with the legislative intent behind the statute.
Those who retain and build up retirement savings are amongst the 7 per cent of the membership who would largely constitute members who join voluntarily. In addition to building retirement savings, this category also enjoy the benefits of favoured tax treatment. These members are not under any financial pressure to withdraw EPF monies during employment and hence their balances have accumulated.
Press Release: PIB
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