Employee’s Provident Fund (EPF) members can get their updated account balance through SMS by furnishing their PF number and mobile number.
Monthly account details were not being sent through e-mail, as of now.
The updated PF accounts are available on wwe.epfindia.gov.in from August 2012 and the accounts are updated as and when the contribution is received.
Government has earned interest income of Rs 13,315 crores in 2011-12 from investments made out of Employees Pension Fund.
As of 31 March 2012, total corpus of Employees pension fund stood at Rs 1, 62,980 crores. And whole corpus is invested.
Of invested amount, Rs 57,087 crores is in public account and rest is invested in securities.
The average rate of interest on public account is 8.5 %. And average rate of interest on securities is 8.27%.
In the financial year 2011-12, the pension fund received total contribution of Rs 14,767.47 crores.
Certain minimum pension rates were raised in 2011-12, prior to this the minimum pension rates were raised in the year 2000. According to revised rates, widow/widower pension was raised from Rs 250 to Rs 450 per month, child pension was raised from Rs 115 to Rs 150 per month and orphan pension was raised from Rs 170 to Rs 250per month.
The three NPS fund managers handling the pension funds of central and state government employees have given an average return of 9.33% in the last one year. This means it has outperformed state-run Government Provident Fund (GPF), Employees Provident Fund (EPF) which has given the return of 8.25% for FY’12 and Public Provident Fund (PPF) which has given the return of 8.6%.
The three-year annualized returns of NPS are also quite decent at 8.47%.
Though, three years is a very short time to judge a long-term instrument such as pension fund, but its impressive performance is likely to silent the critics that NPS is not allocating to growth assets.
Central and state government NPS funds can invest maximum of 15% in equities. Even in NPS for the general public, where investors can choose their own asset allocation, a maximum of 50% can be put in equities. Pension Fund Regulatory and Development Authority (PFRDA) have defended this conservative allocation saying that pension fund should not have large exposure to risky assets.
Last few years have also proved this conservative approach right. As equity markets have tumbled during last year, with Nifty falling 6.5%. In last three years Nifty has delivered an annual average growth of 4.95%. On the contrary government securities and debt instruments have rallied on the back of Reserve Bank of India’s (RBI) rate cuts. After lackluster two years between 2009 and 2011, gilts rallied in 2012, as benchmark yields tumbled.
The gilt funds are managed by six fund managers of the NPS for the general public has risen almost 9.95% in the last one year. This has helped in the performance of NPS.
NPS manages the retirement fund of more than 16 lakh central and state government employees, who have invested about Rs 8,500 crore. The funds of NPS are managed by three pension fund managers –LIC pension fund, SBI pension fund and UTI retirement solutions. Each of the three fund managers manages roughly one-third of the NPS corpus.
Employee’s Provident Fund (EPF) is a benefit scheme for salaried individuals for their old age after their retirement. It is not only tax saving instrument but it also provides security and stability to the employee and his family as well.
Under Employee’s Provident Fund and Miscellaneous provisions act 1952 or PF act employees are required to contribute 12% of their salaries towards Provident Fund (PF) with equal contribution by their employers.
In the case of employee not being International Worker (IW) (foreign employees coming to India or Indian going abroad for work) subject to conditions, it is mandatory for employer to contribute towards PF if the number of employees in his firm is 20 or more having salary upto Rs 6,500 monthly. However, employees earning monthly salary more then Rs 6,500 can voluntarily choose to contribute to the scheme.
Salary for the purpose of PF: Salary for the purpose of PF would include basic wages, dearness allowance (including cash value for food concession) and retaining allowance.
Basic wages means all emoluments earned by an employee while on duty/ leave/ holiday, according to the terms of the employment or which are paid or payable in cash. This does not include house-rent allowance, bonus, overtime allowance, commission or any other such allowance.
Contribution of employer for PF: Statutory rate of contribution is 12% (10% for spinning sector and other specific industry) of the salary towards PF and it is tax-free under income tax act. Out of 12% of the employer’s contribution 8.33% is required to be remitted towards pension fund and 0.5% towards Employee’s Deposit Linked Insurance Scheme (EDLIS)’ 1976.
Contribution of employee towards PF: An employee can claim deduction upto Rs 1 lakh per annum under section 80C of Income Tax Act 1961, on his contribution towards PF from his taxable income.
Contribution of employee should be equal to the contribution payable by the employer. However, the employee may at his option contribute an amount more than 12% subject to condition that the employer shall not be under an obligation to contribute over and above his contribution payable under PF act.
Interest on PF: Employees earn interest on both contribution done on his own and contribution made by his employer and interest earned up to 9.5% is exempted from tax.
Transfer of PF: If employee changes his employment then employee is required to change his PF balance under new employer’s account. Such transfer does not entail any tax implication on the employee.
Withdrawal of PF: A member of PF will not be taxed on the withdrawal of PF in conditions such as if he retires after the age of 58 years, if he retires due to permanent and total incapacity for work due to bodily or mental infirmity, termination of service in the case of mass or individual retrenchment, after two months of resignation in the case of no employment.
Taxability in the case of premature withdrawal: If employee had rendered less than five years of continuous service, the employer’s contribution and interest, thereon will be fully taxable as salary income in the hands of the individual. Employee’s contribution will be taxable to the extend of deduction claimed under section 80C, if any, under Income Tax Act 1961 and interest earned on employee’s total contribution would be taxable as income from other sources in the hand of the employee.
Seeing the current scenario it looks that Government should start winding up the Employee’s Provident Fund Organization (EPFO) and allow workers to voluntarily shift to New Pension Scheme (NPS) which is well managed and which had also generated superior returns for last two years so that workers who are subscribers of EPFO can also earn better return on their retirement corpus.
On the one hand for last two years NPS has given the average return of 11.8 % while on the other hand it is expected that EPFO for the current fiscal will offer return of just 8.25% as against 9.5% in the last fiscal. And EPFO’s track record of managing fund has also not been good.
Take for instance if one person invests Rs 5 lakh in NPS and another person invest same amount in EPFO; and assuming that both saving systems will maintain their rate of return as they had given in last fiscal for next 15 years then person who has invested in NPS will get Rs 7,42,466 more at the end of 15 years and in this we have not taken in account fresh accruals on which compounding will also work; and even EPFO cannot offer 9.5% return every year as last year it could do because it discovered hidden reserves and it can not find it every year.
And it is also irrational to think that EPFO can offer 9.5% return by investing in special deposits that earn a fix interest of 8% per annum and PSU and government bonds. EPFO trustees do not like to take an advantage of Indian stock market while foreign pension fund and NPS take complete advantage by taking out profit from it.
EPFO has corpus over Rs 3.8 lakh crore which is large enough that can be diversified across different asset classes that can fulfill both requirements of high returns and minimizing risk.
Exempt trust or provident fund trust run by private firms are also forced to invest as per the investment pattern of EPFO.
Hence, subscribers of EPFO and Exempt fund should have the choice to migrate to NPS that give them choice to select any of three fund with varying exposure in equities and they will also have the option to choose fund managers and in addition of that NPS’s secure accounting, sound regulation and seamless portability will help them to accumulate good retirement fund.
Government should also amend the income tax law to bring the tax treatment on NPS in par with other long term saving instruments.
It is expected that government might slash the EPF rate. Employee’s Provident Fund Organization’s (EPFO) board in its next meeting to be held on 23 December 2011 may slash the Employee’s Provident Fund (EPF) rate by 1.25% which will be the highest single rate cut in the decade. For the financial year 2011-12 government is likely to announce the rate of 8.25% for EPF subscribers.
Government after keeping rate constant at 8.5 % for many years increased rate of interest on retirement fund at 9.5 % for financial year 2010-11 as it discovered that reserves of Rs 1,700 crore has accumulated in Provident fund coffers over years. But this increase has created a problem for government for this fiscal year as reserves are insufficient to support the one percent hike which had lead to decline in EPFO’s income hence government does not have any other way except to cut down rate for the current fiscal.
This move of government is proving unpopular move and it is also attracting opposition in the present scenario of high inflation and high interest rate. If EPF rate is reduced to 8.25% that means it will give even less return than other small saving schemes. Government has increased interest rate on small saving schemes such as Public Provident Fund (PPF) to 8.6% and National Saving Certificate (NSC) to 8.7%. And even banks are giving you return of 9% on risk free fix Deposits (FD).
EPF net is mandatory for every company employing over 20 employees. Employee has to contribute 12% of their basic pay to the EPF account and his employer also makes equal contribution to his EPF account.
As per Provident fund scheme rules it is mandatory for labour ministry to table annual accounts in parliament by 20 December of every year and generally EPFO board meets before 10 December to clear the accounts but this year board is meeting on 23 December.
Only way for government to offer EPF rate of 8.5% is to revise the rate of less known Special Deposit Scheme (SDS) which at present offers 8% rate of return. EPF has parked around Rs 55,000 crore funds in SDS. Interest on SDS is paid on first January and it is generally aligned with PPF rate hence if government increases the rate for SDS then it can possible for government to offer 8.5% rate on EPF.
Government is back on the track of economic reforms to make India investment friendly country. In this direction government is likely to open up pension sector for Foreign Direct Investment (FDI). Government may allow foreign investors to invest in pension sector upto 26%. This is the recommendation of parliamentary panel headed by former finance minister Yashwant Sinha; the panel is examining the pension and insurance bill.
For long time foreign firms were demanding for liberalization of pension sector and insurance sector so that they can capitalize on the fast growing economy of India. This will give access to foreign investors to $2 billion of assets which is also expected to grow as more and more people are joining the organized work force and this sector is untapped as well.
Most of the 23 life insurers in the country who have foreign firms as partners are also keen to enter the pension sector.
Currently pension fund of employees is managed by IDFC, SBI, ICICI Prudential life insurance, Kotak Mahindra bank, Reliance capital and Life Insurance Corporation of India (LIC).
Panel has also recommended that New Pension Scheme (NPS) which is subscribed by central and state government employees should provide minimum return at par with the state-run social security fund Employees Provident Fund (EPF).
EPF is governed by separate law; it manages over Rs 50 billion crore of corpus of around 4 crore employees. In FY’11 it has given out the return of 9.5% to its subscribers.
Government likely to raise its contribution to the Employees pension Fund by 0.3% to increase the pension payout to 5 crore salaried persons covered under Employees Provident Fund (EPF) Act and corresponding increase of contribution of the employer to the pension fund will take the minimum pension of employees to Rs 1,000 a month.
A subcommittee of employees provident fund’s board of trustees has suggested that to bring the pension of employees covered under provident fund Act to minimum Rs 1,000 per month either government or employer has to increase its contribution by 0.6% of the basic pay of the employee; for this government is considering to share it with the employer that means the government will contribute half of it that is 0.3% and rest will be contributed by the employer; but still employer’s contribution to the EPF will be the same at 12% of the employee’s basic pay. This will increase the burden of Rs 200 crore on the government.
Employees with minimum basic pay of upto Rs 6,500 and establishments with employees over 20 employees are eligible for mandatory PF and pension schemes; employee makes contribution of 12% of his basic salary to provident fund and matching contribution is made by employer; of employer’s contribution 8.33% of basic pay goes to the pension fund to which government also contributes 1.16% of basic pay.
The committee has also suggested second option according to which government can fix a minimum pension of Rs 1,000 along with 3% incremental hike for specific time; but this option has been completely ruled out as it was not possible for government as it would had increased the big financial burden on government.
Government is planning to extend the Employees Provident Fund (EPF) scheme to more firms as government is considering a proposal which extends the EPF scheme to all companies with over ten employees; currently as per the EPF Act any factory or establishments which have 20 or more employees have to contribute to the EPF.
Government has also constituted an expert committee to review the existing pension scheme to know whether it has become non-sustainable.
Last ninth and tenth valuation conducted for the pension scheme in 2005 and 2006 has showed that there was an actuarial deficit of Rs 22,659 crore for the existing scheme.
However government has taken corrective steps such as increasing reduction factor for early pension and introduction of withdrawing option for commutation and return of capital.
It is expected that 4.72 crore members of Employee’s Provident Fund Organization (epfo) will be able to view their balance of EPF account online from July 1st.
At present all 120 offices of EPFO spread over the country do the updation of the account.
This facility will be implemented in two phases; in the first phase subscribers can view their balance of EPF account of previous financial year; and in second phase which will take another 3-4 months subscribers can see their latest balance.
To know the balance members have to just go to the website and quote their account number.
This facility will address the major grievances of the EPF’s subscribers; as they could know whether their employer has submitted their contribution in their account or not.
On the question of possible misuse of this facility say if a person knows the account number of other person than he could see his account; EPFO’s official said that in the interest of transparency this facility should be allowed.
