Will EPFO trim EPF rate below 8% for FY23? Take a look at past provident fund rates here

The Central Board of Trustees (CBT) of the Employees' Provident Fund Organisation (EPFO) commenced a two-day meeting on Monday. Although the agenda of the meeting is unclear, expectations are that the EPF statutory body will likely revise interest rates on the provident fund for the financial year FY23. However, expectations are that CBT is unlikely to trim EPF interest rates below 8%.

Apart from interest rates, higher pension and annual financial estimates for the EPFO are likely to be discussed in the meeting.

The meeting will continue till March 28th. An outcome on EPF rate is likely by Tuesday. 

In March, last year, CBT trimmed the EPF interest rate to its lowest level in 40 years to 8.1% for fiscal 2021-22.

In the latest meeting, it is expected that the EPF interest rate will likely remain unchanged for FY23 compared to the previous fiscal.

The last time, the EPF rate was lowest was in 1977-78 at 8%.

Historical data shows that there was a time when EPF rates were above 10% in the late 90s. The rates picked up to over 10% from 1985-86 and rose to 12% by end of fiscal 2000-01. However, from fiscal 2001-02, EPF rates were back to under 10%.

From fiscal 2001-02 to 2004-05, the EPF rate was kept at 9.50% but got reduced further to 8.50% between 2005-06 to 2009-10 financial years.

EPF rate did see a temporary rise to 9.50% in the financial year 2010-11 but soon was scrapped to 8.25% in 2011-12.

In the past decade, EPF rates have ranged from 8.10% to 8.80%.

From 2011-12 to FY22, the highest EPF rate was in the fiscal year 2015-16 at 8.80%. The lowest rate would be 8.10% in FY22.

Before FY22, EPF rates stood at 8.50% for two consecutive fiscal 2020-21 and 2019-20.

Last year, in March, Finance Minister Nirmala Sitharaman defended the reduction in the interest rate paid on employees' provident fund deposits at 8.10%. She said that the 8.10% rate is still better than the interest rate on other small saving instruments which were even lower.

Also, on March 22, 2022, the Ministry of Labour & Employment revealed that from FY 2012-13 & FY 2013-14, the Consumer Price Index (CPI) which is a measure of retail inflation, was surpassing the EPFO rate, which meant that EPFO was giving negative Real Rate of Interest (i.e., Nominal/Actual Rate of Interest-Inflation) when compared with inflation.

Further, the labour ministry added that after FY 2013-2014, while CPI has been kept under control, owing to pro-active government policies, the interest rate on EPFO has, by and large, been kept constant. It added, "thus, the employees have been getting positive real returns on their investments."

Currently, the economy globally is facing a rate hike cycle. Inflation emerged as the biggest elephant in the room since early 2022 for macroeconomic risks globally, especially after the Russia-Ukraine war escalated which led to extremely volatile conditions in markets and economies. In line with other major central banks, RBI has taken the rate hike route as well to tame inflation and bring it under its tolerance limit.

So far, in FY23, RBI has hiked the repo rate by 250 basis points, taking it to 6.5%. The latest hike would be 25 bps on February 8, 2023. MPC members have also continued to hold onto the "withdrawal of accommodation" stance.

In February 2023, inflation came at 6.44%, still higher than RBI's upper tolerance limit.

Taking into consideration the latest inflation rate, the latest 8.1% EPF rate is higher than the CPI levels.

As per the data released by NSO, 6,27,08,006 new subscribers joined the EPF Scheme from September 2017 to January 2023.

In January this year, EPFO added 14.86 lakh net members to the provident fund account. Of the total, around 7.77 lakh new members have come under the ambit of EPFO for the first time. While only 3.54 lakh members exited the fold of EPFO this month --- which is the lowest exit in the last four months.

EPFO is a social security organization responsible for providing social security benefits in the form of Provident, Pension, and Insurance Funds to the organized workforce of the country covered under the provisions of the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952.