The 4.7 crore EPFO subscribers were left guessing during the year on continuance of 9.5% interest rate for this fiscal, with the retirement fund body, in an unprecedented development, deciding to refer it to the finance ministry for a final decision.
Despite intense deliberations during the year, the Employees' Provident Fund Organisation's (EPFO) apex decision making body, Central Board of Trustees (CBT), headed by the Labour Minister, failed to arrive at a conclusion on the issue.
The EPFO trustees took up the issue for a final decision on the rate of return for its subscribers at a meeting held this month.
It has provided three different alternative rates to the Finance Ministry for consideration, including its own recommendation of 8.25%, 9.5% as demanded by the unionists and employer's prescribed rate of 8.5% for current fiscal.
"There are different views that emerged on the issue of rate of interest to be paid this fiscal. We will send the viewpoints of the EPFO, unionists and employers' representatives to Finance Ministry for a decision," said Labour Minister Mallikarjun Kharge.
As per the practice, the EPFO, which is an autonomous body, decides the interest rate on provident fund deposits for every financial year in advance on the basis of income projection and then seeks finance ministry's concurrence.
The EPFO's way of handling the issue invited sharp reaction from the unionists with Hind Mazdoor Sabha Secretary A D Nagpal, who is also a trustee, saying: "This is unfortunate. It has happened for the first time".
Similar views were expressed by another trustee and All India Trade Union Congress Secretary D L Sachdev who said CBT should have taken a decision on the matter.
The CBT takes the final call on the issue on the basis of the recommendations of its advisory body Finance and Investment (FIC) and sends its decision to the finance ministry for its concurrence.
Interestingly, even the FIC could not give a firm recommendation and reported its unionists members' reservations on the issue.
However, it pointed out in its recommendations to the CBT that providing 8.25% rate for the current fiscal would result in a deficit of Rs 24 lakh which would further swell to Rs 526.44 crore at 8.5%.
During the FIC meeting on December 22, the unionist punched many holes on the accuracy of the EPFO's official estimate of income projections and demanded maintaining 9.5% rate of return during 2011-12 as in the last fiscal.
The employees' representatives in the FIC meeting sought clarification about the income estimation error, which was Rs 458.73 crore.
They pointed out that when rate of return on over 85% of the investment made by the EPFO is fixed, how could they calculate this amount on entire possible income of the body.
The unionists were of the view that if this estimation error is factored in properly, then EPFO can spare around Rs 400 crore which is sufficient to pay additional 0.25% over projected 8.25% rate of return this fiscal.
EPFO has reduced 2.5% (Rs 458.73) crore as estimation error from an estimated income of Rs 18,349.20 crore and projected an income of Rs 17,890.47 crore for 2011-12.
The unionists, on their part, also raised the issue of interest income on the inoperative accounts on which EPFO has stopped paying interest rate from April 1, 2011, to the subscribers.
Inoperative accounts are those accounts which have not received any contribution for 36 months or more. There is about Rs 15,000 crore lying in those account, which was also invested and was yielding some returns, it was pointed out.
These points were again raised during the CBT meeting on December 23, with the unionists again demanding 9.5% rate of return for the current fiscal.
However, the minister clarified on the issue of distribution of income from inoperative accounts to live accounts, and said that "it could not be done as actual income assessment from those account will be possible only after end of this fiscal".
Besides the interest rate, the trustees also deferred the decision on their ambitious plan of fixing minimum pension at Rs 1,000 per month for its subscribers and issuing contribution cards similar to bank passbook to its members.