The Central Board of Trustees of EPFO is said to have recommended interest rate of 8.5%, lower than the 8.65% given for deposits for the previous financial year 2018-19
The Central Board of Trustees of Employees’ Provident Fund Organisation (EPFO) has recommended interest rate of 8.5% for 2019-20, the lowest interest rate in over five years, on provident fund deposits, media reports say. The interest rate would affect six crore EPFO deposit accounts.
The 8.5% EPFO rate would be lower than the 8.65% interest rate given on employees’ provident fund (EPF) deposits for the previous financial year 2018-19. The rate of 8.65% was raised from 8.55% (2017-18), the first increment in EPF rates in many years. This hike has proved to be short-lived.
The lower 8.5% EPFO interest rate will have a negative impact on retirement kitty.
For instance, a 35-year old person with basic salary of Rs 30,000 per month at 8.65% interest rate will retire with EPF corpus of Rs 49.26 lakh at the end of 58 years (23 years maturity period). At the new interest rate of 8.5%, the same person would retire with Rs 48.25 lakh i.e. a full Rs 1 lakh less.
If you do the same calculation for a 25-year old, then the EPF maturity balance at 58 years would be Rs 1.24 crore at 8.65% EPFO interest rate. But at the lower rate of 8.5% rate, this corpus falls to Rs 1.20 crore i.e. a full Rs 4 lakh less.
Do remember our calculations assume the EPF balance at the starting point is zero and there is no growth in EPF contribution. We assume employer’s contribution to EPF is 3.67 and employee’s contribution to EPF is 12%.
Meanwhile, the 226th meeting of the Central Board of Trustees (CBT), EPF was held on March 5 under the chairmanship of Santosh Kumar Gangwar, Minister of State for Labour & Employment (Independent Charge) and Vice Chairmanship of Heeralal Samariya, Secretary, Ministry of Labour & Employment. Central Provident Fund Commissioner Sunil Barthwal conducted the meeting as Member Secretary, CBT, EPF.
The Central Board recommended crediting of 8.5% annual rate of interest on the EPF accumulations in the EPF members’ accounts for the year 2019-20.
The Central Board also ratified and appreciated restoration of normal pension after 15 years from the date of commutation, benefitting about 6.3 Lakh pensioners who had opted for commutation under the erstwhile Para 12-A of EPS, 1995 on or before 25.09.2008.
The board recommended to extend the provision of minimum assurance benefit of Rs 2.5/3 lakh, payable to family members of deceased employee who dies while in service. Earlier, the benefit of minimum assurance of Rs 2.5 lakh and maximum assurance amount of Rs 6 lakh was not payable where the member worked in more than one establishment during a continuous period of 12 months preceding the month of death. Now Board has approved to extend these benefits even if a member had worked in multiple establishments.
Subscribe & keep learning!