Tag: EPFO

EPFO meet to discuss hike in minimum pension

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At the next meeting of the Central Board of Trustees (CBT) of the Employees Provident Fund Organisation (EPFO) scheduled later this month, increasing the minimum pension for the subscribers of the pension fund is the key agenda.

While the Central Trade Unions have demanded a hike of up to ₹6,000 from the current ₹1,000, the CBT may take it up to ₹3,000. The controversial issue of investing the EPFO money in private corporate bonds may also come up in the meeting. The CBT may also discuss the issue of the interest rate for the fund for 2021-22.

‘Against pensioners’

“We expect that the CBT may decide to increase it to ₹3,000,” a CBT member told BusinessLine. The Labour Standing Committee had recently recommended the Centre to increase the minimum pension to ₹3,000. However, a trade union representative said they do not expect much progress on this. “The Centre has been delaying the decision. The attitude of the Centre is against giving anything to pensioners and workers,” the TU leader said.

There are indications that the present interest rate of 8.5 per cent will continue for the money deposited in the EPF. “We were having an interest rate of 12 per cent earlier. We have been asking the Centre to restore it. But they brought it down to 8.5 per cent,” a Trade Union representative in CBT said.

A source in the Labour Ministry, however, said that there may not be any change in the current interest rate. The EPFO and the Finance Ministry have been urging the CBT to permit investment of money in the EPFO in various infrastructure bonds. At the moment, the money is invested in the exchange-traded funds (ETF) of the PSUs.

“The Centre was seeking permission to invest the money in private corporate bonds. It wants the CBT to look at the possibility of such investments on a case-to-case basis,” a member said. The CBT is likely to discuss the Centre’s request for removing the restriction on investing in private sector bonds. The agenda may also include permitting the Financial Investment Committee to invest in private bonds approved by the Finance Ministry. The meeting was scheduled to take place on November 16. But it has been postponed.

“The final agenda is not ready yet. We will hold a meeting in November itself,” a Labour Ministry official said. The last meeting of the CBT was held in Srinagar in March. The CBT recommended an 8.5 per cent annual rate of interest to be credited on EPF accumulations in members’ accounts for 2020-21. The Finance Ministry approved the proposal recently.

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Finance ministry approves 8.5% return on PF deposits for FY21, BFSI News, ET BFSI

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The finance ministry has given its go ahead to 8.5% rate of interest on provident fund deposit for 2020-21 paving way for the Employees’ Provident Fund Organisation to credit the interest in accounts of over 60 million beneficiaries.

The move is expected to bring some cheer a week ahead of Diwali. Labour secretary Sunil Barthwal confirmed the development to ET. “Approval was received from the finance ministry today. It will be notified as soon as possible,” he said.

The labour ministry has to notify the interest rate for the year before EPFO starts crediting it into the beneficiary account.

The move is expected to leave EPFO with a surplus of Rs 300 crore compared to the preceding financial year when it had a surplus of Rs 1000 crore.

The central board of trustees of EPFO, headed by the labour minister, had in March this year approved the interest rate of 8.5% for 2020-21, same as the previous year. However, the labour ministry has to mandatorily seek approval from the finance ministry on the proposed rate. The process was fast tracked after top officials of the labour ministry met finance ministry officials earlier this month to address their queries and asked them to expedite the process.

The finance ministry has over the past few years questioned the higher rate of interest declared by EPFO year after year when the rate of interest for other government schemes including public provident fund or small saving schemes was much lower.

EPFO had pegged an income of around Rs 70,300 crore in the previous fiscal including around Rs 4,000 crore from selling a portion of its equity investments and Rs 65,000 crore from debt.

Based on this, its central board of trustees, headed by the labour minister, had recommended the interest rate of 8.5% for FY21. EPFO had retained the interest rate on PF deposits for 2020-21 same as 2019-20 despite the huge amount of Covid withdrawals from the retirement fund kitty since the scheme was announced last year.

EPFO has an active subscriber base of more than 60 million and every year it invests 15% of its annual accruals in equity and rest in debt instruments. However, since the outbreak of Covid millions of salaried class workers have lost jobs or have been working on reduced wages prompting them to withdraw from their retirement fund kitty under the Covid withdrawal scheme.



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EPFO adds 14.81 lakh members in August

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The provisional payroll data of EPFO continued to show a growing trend consecutively for the last five months and added around 14.81 lakh net subscribers in August. The net subscriber addition has increased by 12.61 per cent as compared to July’s figures.

Out of the total 14.81 lakh net subscribers, around 9.19 lakh workers are new members of the EPFO. Around 5.62 lakh workers exited but rejoined the EPFO by changing jobs. Workers in the age-group of 22-25 years registered highest number of net enrolments with 4.03 lakh additions during August, the Union Labour Ministry claimed in a release.

“This is followed by age-group of 18-21 with around 3.25 lakh net enrolments. This indicates that many first-time job seekers are joining organised sector workforce in large numbers and have contributed around 49.18 per cent of total net subscriber additions in August,” the release added.

Establishments covered in Maharashtra, Haryana, Gujarat, Tamil Nadu and Karnataka added approximately 8.95 lakh subscribers during the month, which is around 60.45 per cent of total net payroll addition across all age groups.

The net addition of female workers has increased roughly by 10.18 per cent largely due to lower female member exits during August. Expert services’ category (consisting of manpower agencies, private security agencies and small contractors etc.) constitutes 39.91 per cent of total subscriber addition, the Ministry said.

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Borrowers hasten plans to raise bonds after RBI’s steps to cut easy money, BFSI News, ET BFSI

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Companies are rushing to raise bond funds after the Reserve Bank of India took steps to cut easy money in its bi-monthly policy last week, resulting in an uptick in rates.

Companies including Indian Railways Finance Corporation, State Bank of India, Punjab National Bank and IndusInd Bank are likely to raise about Rs 15,000 crore in one or two weeks, market sources told ET.

Indian Railways Finance is aiming to raise about Rs 5,000 crore. It is already in talks with the Employees’ Provident Fund Organisation (EPFO) and is also set to hold discussions with potential investors this week.

These borrowers did not reply to ET’s queries. EPFO could not be contacted immediately for comment.

“The company always seeks to rationalise its fund costs, which may rise in coming days,” said a senior executive involved in the matter.

State Bank of India is set to launch its Additional Tier 1 bond sales this week, aiming to raise up to Rs 6,000 crore.

“Changing rate sentiment will drive borrowers to raise money, particularly when the economy is reopening,” said Mahendra Jajoo, chief investment officer – fixed income, at Mirae Asset Investment Manager (India).

It is natural for companies rushing to garner funds before they turn costlier, he said. “Bond Street should witness heightened activities in the coming days.”

The RBI discontinued the Government Securities Acquisition Programme in the last credit policy. It is billed as a step for liquidity normalisation.

The central bank also proposed to conduct the 14-day long-term variable rate reverse repo (VRRR) auctions on a fortnightly basis for a total estimated amount of Rs 25 lakh crore by December 3. This will suck out excess money out of the banking system that has a surplus of Rs 7.83 lakh crore now versus Rs 8.33 lakh crore at the beginning of the month.

“Market is now fairly convinced about RBI’s objective, which in turn is already reflecting in some of the money market rates and benchmark bond yields,” said Ajay Manglunia, managing director – head of institutional fixed income, at JM Financial.

“Borrowers are engaging with arrangers or directly talking to potential investors to raise debt via bonds before the rates start moving one-way northward,” he said.

The benchmark bond yield rose as much as 17 basis points in the past three weeks, raising overall funding costs.

At a 14-day VRRR auction last Friday, the cut-off rate, above which none can bid, yielded almost 4%, on par with the repo at which banks borrow money from the RBI. It was 3.60% in the previous fortnight.

Before that on September 28, the 7-day VRRR cut-off yield came at 3.99%, twisting interest rate sentiment compared with 3.38% the preceding fortnight.

In the past one-week, corporate bond sales totalled just about Rs 1,000 crore, much less than usual volumes. Investors chose to stay off from the bond street ahead of the RBI’s monetary policy that was widely anticipated to spell out a stance on liquidity.



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What you should know about Covid death claims under ESI and EDLI schemes

Personal Finance

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In a move to provide a financial cushion to families who have lost an earning member of the family due to Covid-19, the government recently announced a few measures under the Employees State Insurance (ESI) Act and the EPFO’s EDLI (Employees’ Deposit Linked Insurance) scheme.

The benefit of family pension given under the ESI Act in case of employment related deaths is now extended to those who have died due to Covid-19.

The measures under the EDLI Scheme are a reiteration of those already announced by the Labour Ministry on April 28. That includes, increasing the minimum and maximum assurance benefits from the Scheme in case of death of an employee to Rs 2.5 lakh and Rs 7 lakh respectively. Further, benefits under the scheme have also been made available to the families of contractual/ casual workers.

Covid death under ESI

ESI is currently applicable to employees earning wages of up to Rs 21,000 per month working in a factory carrying out manufacturing process. All factories employing 10 (20 in case of Maharashtra and Chandigarh) or more employees are covered. The wage (all remuneration) limit is ₹25,000 in case of a person with a disability.

In these establishments, employers must contribute 3.25 per cent of the wages of the employee to the ESIC. Employees’ contribution of 0.75 per cent will also be deducted and transferred to ESIC.

An employee covered under this Act will be called an ‘insured person’.

Families of those covered under the scheme would get pension benefits (in addition to other benefits) in case of death due to employment.

A pension equivalent to 90 per cent of the average daily wage drawn by the worker is available to the spouse (till remarriage) and widowed mother for life and for children till they attain the age of 25 years. For the female child, the benefit is available till her marriage.

In case the insured person does not leave behind any of the dependents referred above, then his parents will get part of the pension and if no parent is alive then his/her paternal grandparent will get an equal amount as dependent benefit.

With addition of death due to Covid under ESI, all dependent family members of the deceased who have been registered in the online portal of the ESIC prior to their diagnosis of Covid disease will be entitled to receive the same benefits.

However, there are two conditions. One, the deceased would have to be registered on the ESIC online portal at least three months prior to the diagnosis of Covid disease. Secondly, the deceased must have been employed and contributions for at least 78 days should have been paid or payable during a period of one year immediately preceding the diagnosis of Covid.

If these conditions are fulfilled, the insured person’s dependants will be entitled to receive monthly pension payment during their life. The scheme will be effective for a period of two years from March 24, 2020.

Rise in EDLI benefits

To provide income security to the family of a private sector employee after his/her death, the government introduced the Employees’ Deposit Linked Insurance Scheme in 1976. This life insurance scheme covers all active members of the Employees’ Provident Fund. For availing of the insurance cover, employees need not contribute any amount.

In the unfortunate event of death of an employee who is a member of the EDLI scheme, family members receive assured benefits. The benefit under this scheme is based on the monthly wage (basic + dearness allowance) and/or the average balance in the member’s PF account, subject to minimum and maximum limits. Monthly wages here are capped at ₹15,000.

As per the recent amendment, the benefit is calculated by using the following formula: (Average monthly wages drawn during the preceding 12 months*35) plus (50 per cent of the average PF balance during the last 12 months, subject to a ceiling of ₹1,75,000). Irrespective of the formula, the minimum benefit will not be less than ₹2,50,000, if the employee has continuously worked for 12 months.

Earlier, the 12 months employment condition in the above provision requires working at the same establishment. Now, that has been removed and amended to one or more establishments. This is expected to benefit contractual/ casual labourers who were losing out on benefits due to the condition of continuous one year in one establishment.

The new minimum death cover of Rs 2.5 lakh (if not for amendment, Rs 2 lakh) will be effective retrospectively from February 15, 2020.

Amount of maximum benefit has been increased from 6 lakhs to 7 lakhs to the family members of deceased employee.

These new limits will be in effect for three years from April 28, 2021.

The benefits under the scheme will be payable to the nominee mentioned by the employee. If no nomination is made, his spouse, unmarried daughters and minor sons will be beneficiaries.

Exempted entities

While nothing can replace the loss caused due to the death of a loved one, monetary support would help meet the immediate financial needs of the family, especially if the deceased is the bread winner.

Families of the deceased (due to Covid) should ascertain whether they are applicable for the benefits under both or one of ESI and EDLI schemes, and accordingly claim the amount.

There are firms/establishments who would have obtained exemptions from the applicability of ESI and EDLI schemes on the understanding that the benefits provided by them to employees will be similar or more beneficial.

Beneficiaries of employees belonging to such organisations have to be cautious if the new amendments are made applicable on their benefit amount. As per Saraswathi Kasturirangan, Partner, Deloitte India, “Given the retrospective nature of some of these provisions, it is important for employers to determine how these benefits would be extended to their employees and also enhance the insurance coverage in line with these requirements.”

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What you should know about EPFO pension

Personal Finance

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The Employee Pension Scheme (EPS) hogged headlines recently. Reports suggested that the Centre wants the EPS to be moved from a defined benefit scheme to be a defined contribution scheme.

If this proposal sees the light of day, it may change the amount of pension you will receive from the government under the EPS scheme. Being a defined benefit plan, EPS provides a specified pension amount to the member based on employees’ salary, number of years of service and the age of retirement.

But in a defined contribution plan, basis which the National Pension Scheme operates, the pension amount depends on the amount of contribution.

NPS is a voluntary contribution pension scheme while EPS is mandatory for eligible members. Here, we look at some of the important aspects of the current Employees’ Pension Scheme.

Eligibility

All employees in India who are enrolled with the Employees Provident Fund Organisation (EPFO) automatically become members of EPS as well.

But in a major amendment to the EPS in September 2014, the eligibility to the scheme was limited only to those EPFO members whose basic pay plus DA (dearness allowance) is up to ₹15,000 per month. Thus, if you have joined the workforce on or after September 1, 2014, you are likely be part of only the provident fund scheme and not the pension scheme.

Contribution

When you become a member of EPFO, your monthly salary is credited only after the deduction of 12 per cent of your basic plus DA towards the provident fund. The employer also makes a matching contribution of 12 per cent from their pocket towards your retirement corpus.

Out of the employer’s contribution of 12 per cent, 8.33 per cent goes into the EPS fund and only the balance 3.67 per cent goes towards provident fund accumulation. The central Government also contributes 1.16 per cent of the pay (basic+DA) of the employee towards the EPS.

However, there is a cap on EPS contribution. Where the pay of the member exceeds ₹15,000 per month, the maximum pay on which the contribution is payable by the employer and the Centre is limited to ₹15,000 per month (₹6,500 until September 1, 2014). Thus, here,maximum employer contribution to the EPS account on behalf of a member per month will not exceed ₹1,250 per month (8.33 per cent of ₹15,000).

Higher contribution beyond the ceiling (₹6,500/₹15,000) was also allowed at the option of employer and employee, subject to conditions, but only for existing members as on September 1, 2014.

Pension payout

A member will be entitled to monthly pension payout until death if she has rendered eligible service of 10 years or more and retires on attaining the age of 58 years.

The monthly pension amount will be calculated based on salary and the number of years of service using the formula (pensionable salary*pensionable service/70).

The pensionable salary will be the average monthly pay drawn during the span of 60 months preceding the date of exit from the membership of the Pension Fund (this was at 12 months before the September 2014 amendment). The pensionable salary is, however, subject to a ₹15,000 per month cap. For example, if the average pay drawn during the last sixty months before exit is ₹50,000 and was in service for about 30 years, the monthly pension amount works out to about ₹6,429 (₹15,000*30/70).

In case of existing members as on September 1, 2014, who had been contributing on salary exceeding the wage ceiling (₹ 6,500/15,000), pensionable salary will be based on such higher salary. A member is also allowed to draw an early pension from a date earlier than 58 years of age but not earlier than 50 years of age. In such cases, reduced amount of pension will be paid.

Note that, irrespective of whether an employee has serviced for eligible number of years or not, the member will be eligible for some pension benefit in case of permanent and total disablement during the service.

In case of death of the member, where at least one month’s contribution has been paid into the Employees’ Pension Fund, the family (including widow and children) will obtain the pension benefits, subject to conditions.

Matter sub judice

Clearly, the 2014 amendments to EPS Scheme lowers the number of people that can be eligible for EPS benefits (due to wage limit of ₹15,000) as well as the amount of monthly pension (as, now the pensionable salary of average of last 60 months as against 12 months earlier).

The Kerala High Court, in 2018, set aside the amendments with respect to EPS in 2014. The EPFO filed a special leave petition against this in the Supreme Court, which was dismissed by the apex court in 2019. A review petition against this order of the Supreme Court has been filed by the EPFO and SC’s judgement on the same is awaited.

Meanwhile, many corporate firms seem to be following the EPS scheme as amended in September, 2014 for now.

Further, issues related to benefit of higher pension based on contributions on actual salary for employees of exempted establishments, too, awaits judgement from the SC.

EPFO, in May 2017, created two classes – exempted and non-exempt establishment and denied higher pension based on contributions on actual salary to employees of latter.

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