EPFO Raised Interest Rate on Retirement Benefits

The Employees' Provident Fund Organisation (EPFO) raised the interest rate on retirement benefits by a full percentage point to 9.5% for 2010-11 from 8.5% as prevalent in 2009-10 on 15 Sept 2010. 4.70 crore organised sector workers would benefit from the raise. Corporates that run their own PF trusts will also have to match the new rates. Though the official interest rate is 9.5%, the actual rate of return works out to 13.8% because tax is saved both on the principal invested as well as the interest. The tax saved thus would translate into a very healthy return post tax, which is almost double than that provided by fixed deposits. The hike announced on 15 Sept raised the EPF interest rate to a five-year high and the hike was made possible by the surprise discovery of nearly Rs 1700 crore in the suspense account which is meant for unclaimed PF money. The discovery was made after the central board of trustees headed by Mallikarjun Kharge in 2009 ordered a review of all EPF accounts since 1952. The board of trustees also decided to stop paying interest on "inoperative accounts" thereby reducing the interest burden on account of those who use this fund as an investment destination. Between 1989-90 and 2000, the rate of interest on PF was 12%. It was reduced to 11% in July 2000 and then started declining further in the following years. The interest rates fell as a result of overall fall in interest rates in banks and lower inflation. In 2011 the earnings of EPFO will determine the next rates.