In a blow to current and potential Employee Provident Fund (EPF) subscribers, the labour ministry has reportedly dropped plans to raise the wage ceiling for EPF enrollment from Rs 15,000 to Rs 21,000. It has also cancelled plans to enhance the minimum wage paid out under the EPS (Employee Pension Scheme). The plans have been reportedly been dropped on account of cost considerations.
Under current rules, it is mandatory for employers who have 20 employees or more to enroll all employees earning up to Rs 15,000 per month in the EPF (Employees’ Provident Fund). Employees earning more than this amount can also be enrolled, but this is optional.
The Employee’s Provident Fund Organisation (EPFO), the governing body of the EPF, had proposed to raise the mandatory wage ceiling to Rs 21,000 to increase pension coverage and social security among employees. That plan has reportedly been dropped.
The EPFO was also considering a hike in the minimum pension under EPS (Employees’ Pension Scheme). Both employer and employee contribute 12% of the basic salary to the EPF account. Out of the employer’s 12%, 8.33% is directed towards Employees’ Pension Scheme which pays out a pension after the age of 58 (a minimum 10 years of service is also required).
The pension paid out is based on the following formula: Pensionable Salary * No of years of service/70. However, for employees whose monthly pension falls below Rs 1,000 according to the formula, the EPF provides Rs 1,000 per month as minimum pension. This was proposed to be increased to Rs 3,000 per month to meet rising living costs. However, this proposal has also been abandoned.
The interest rate on the EPF account is declared every year by the EPFO. For FY 2017-18, this had been set at 8.55% (a reduction from 8.65% in 2016-17). However, reports have emerged that the finance ministry has disputed this figure because the surplus with the EPFO is not sufficient to maintain this interest rates. The rate is higher than current FD rates in major banks which lie in the range of 6-7% at present.
In summary, a triple whammy awaits EPF subscribers:
- No hike in wage ceiling for mandatory EPF enrollment from Rs 15,000 to Rs 21,000.
- No hike in minimum pension under EPS from Rs 1,000 to Rs 3,000.
- Uncertainty about whether 8.55% will be approved as the EPF interest rate by the finance ministry.