Report: EPF Interest Rate Likely to Drop Below 8.25%

The interest rate for the Employees' Provident Fund (EPF) for the financial year 2024-25 is expected to be lowered from the current 8.25 percent, as reported by Business Standard on February 27. The decision is influenced by falling stock markets and declining bond yields, which have impacted the EPFO’s investment returns.

The Employees' Provident Fund Organisation (EPFO)'s Central Board of Trustees is set to meet on February 28 to finalize the interest rate for the year. If a reduction is approved, it could affect millions of salaried employees who depend on EPF for their long-term financial security.

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Market Factors Influencing the Decision

The anticipated rate cut comes as bond yields have been on a downward trend in recent months, reducing EPFO’s investment earnings. Additionally, Indian stock markets, which significantly influence EPFO’s returns, have witnessed a continuous decline. After peaking at nearly 86,000 in September 2024, the Sensex has dropped by over 11,000 points, now hovering around 75,000.

According to the report, Moneycontrol has not independently verified the claims regarding the potential rate reduction. However, several board members and experts suggest that the decision is being guided by financial prudence to ensure stability in the fund’s reserves.

EPFO’s Previous Interest Rate Trends

For FY24, the EPFO had declared an interest rate of 8.25 percent, an increase from 8.15 percent in the previous year. While this was a marginal hike, it was still lower than historical rates seen in earlier years. Given current market conditions, a further cut in the interest rate could disappoint contributors, particularly at a time when inflation continues to strain household budgets.

Board Members’ Views on the Interest Rate

An employer representative on the EPFO board, speaking anonymously, indicated that a lower interest rate is likely due to the decline in bond yields. The EPFO may struggle to maintain a surplus if it sets a higher rate, which could leave it with limited reserves for unexpected contingencies.

Another board member reportedly stated that the investment panel is keen on maintaining a financial cushion, as higher claim settlements have already reduced the available pool of funds. These factors are pushing the organization toward a more cautious approach in determining the interest rate.

Concerns Raised by Employee Representatives

TUCC National General Secretary Sheo Prasad Tiwari, representing employees on the board, voiced concerns over the potential rate cut. He highlighted that this fiscal year has witnessed “decent” investment returns and an increase in EPFO subscribers.

“These savings belong to millions of people from lower-income groups. Reducing the interest rate will only exacerbate their financial struggles, especially during high inflation. Our assessment is that the rate will remain unchanged as last year, if not move up,” he told Business Standard.

Impact on Employees and the Economy

If the interest rate is reduced, it could significantly impact salaried employees, particularly those in lower-income groups who rely on EPF savings for their future financial security. A lower return on their retirement savings could also affect long-term wealth accumulation and overall confidence in the fund.

With the official announcement expected soon, employees and financial experts will be watching closely to see how the EPFO balances its financial obligations with the expectations of its members.