EPFO Looks for Ways to Keep Subscribers in Fold

DAMAGE CONTROL Statutory body fears it can lose to NPS; plans hike in benefits under EDLI to 30 times the monthly wage

After decades of wielding a monopoly over the retirement funds of workers in the organised sector, the Employee Provident Fund Organisation (EPFO) is worried it could lose subscribers to the National Pension System (NPS), which has been offering better returns in the last few years--as much as 20% versus 8.75%.
To stem a possible exodus, the EPFO has proposed an increase in benefits from the Employee's Deposit Linked Insurance Scheme (EDLI), benchmarking it to deposits under the primary Provident Fund (PF) account.

“EPFO is exploring various options to incentivise its subscribers to keep money in Provident Fund accounts,“ central provident fund commissioner KK Jalan said. “We have proposed to enhance the insurance benefits under EDLI to 30 times the monthly wage as against 24 times now and have linked it to Provident Fund deposits.“ Currently , EDLI subscribers with more than a year of service get 20 times the average monthly wage of the preceding 12 months along with a 20% bonus. At a monthly wage of Rs.15,000, this takes the total benefit under the scheme to Rs.3.6 lakh. If the proposal goes through, this will rise to Rs.5.5 lakh, including 30 times the average monthly wage and the average balance in the PF account in the preceding 12 months subject to a ceiling of Rs.1 lakh. According to Jalan, the pro` posal is pending with the labour ministry , which will take a call after stakeholder consultation. EDLI, which is applicable to all factories and establishments covered by the Provident Fund Act, provides for a lump sum payment to the nominated beneficiary in the event of the subscriber's death due to natural causes, illness or accident.

It is entirely funded by the employer, which contributes 0.5% of monthly basic pay (capped at a maximum of Rs.15,000) as premium for life cover in ` case the organization does not have a group insurance scheme for its employees. A total of Rs.697.7 crore was contributed under the scheme in FY14 and claims worth Rs. 152.6 crore were settled. It is estimated that out of 4.5 crore EPFO subscribers, about 80 lakh opt for other private group insurance plans after seeking exemption from EDLI.

Improving the attractiveness of the Provident Fund and similar schemes under the law governing them has become a key challenge for the EPFO. Especially , as the government has decided to give formal sector workers a choice between EPFO and NPS.“With respect to the EPF , the employee needs to be provided two options,“ finance minister Arun Jaitley said in his budget speech in February . “Firstly , the employee may opt for EPF or the NPS... For employees below a certain threshold of monthly income, contribution to EPF should be optional, without affecting or reducing the employer's contribution. He also elaborated on the some of the issues that afflict the Provident Fund system.

“The situation with regard to the dormant EPF accounts and the claim ratios of ESIs (employee state insurance, for health coverage) is too well known to be repeated here,“ Jaitley had said. “It has been remarked that both EPF and ESI have hostages, rather than clients... The low-paid worker suffers deductions greater than the better-paid workers in percentage terms.“

To make NPS more attractive, the government has even introduced an additional income tax deduction of Rs.50,000 for contributions from sub scribers to a fund chosen by them. At the time of retirement, the person gets a lump sum amount depending on the performance of that fund.

NPS was introduced in 2004 for new government employees; it was extended to all on a voluntary basis from 2009. EPFO has an active subscriber base of more than 45 million and it directly manages a corpus of more than Rs.6 lakh crore.

Additionally Rs. 2 trillion , more than is managed by exempted establishments or organisations that manage their PF money under EPFO's overarching guidance.

The Economic Times, New Delhi, 9th July 2015