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

Household debt up, but India still lags emerging-market economies: RBI

Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...

External spillovers likely to hit India's financial system: RBI report

While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...

CA Online

Search This Blog