Life Insurance: EPFO Creates Term Insurance Option

Life Insurance: EPFO Creates Term Insurance Option

The Employees’ Provident Fund Organisation (EPFO) has engaged Edelweiss Tokio Life Insurance to provide the group term insurance plan in lieu of Employees’ Deposit Linked Insurance (EDLI) Scheme 1976 which may lead to a higher group insurance of Rs1.32 lakh for each employee. Under the existing scheme, an EPFO subscriber gets insurance cover of up to Rs1 lakh before superannuation. 

Employers contribute 0.5% of basic pay of an employee as insurance premium to the EDLI scheme every month. The benefit under the scheme is given on the basis of the provident fund balance in the subscriber’s account. The subscriber gets the benefit equivalent to the PF account balance if the balance is up to Rs50,000. If the balance exceeds Rs50,000, the benefit is to the tune of the account balance plus 40% of balance, subject to maximum of Rs1 lakh. 

Meanwhile, the finance ministry has approved 8.5% interest for PF for 2012-13, up from 8.25% in the previous year, for over 50 million EPFO subscribers. EPFO is supposed to announce the rate of interest on PF deposits before the beginning of a financial year. However, for the past few years, there has been delay in announcement of rates. This time, the rate of interest has been notified after the end of the financial year. In the absence of the notification, the claims are settled at the interest rate .

EPFO bid to rejig Provident Fund may hit finance ministry wall

The Employees Provident Fund Organisation's (EPFO) proposal to club allowances with basic salary to calculate provident fund contribution could face a finance ministry roadblock. 

While clubbing various allowances can more than double the basic pay for a large section of employees, it will also increase the budgetary provisions for the EPF pension component to over R2,800 crore annually from R1,400 crore last fiscal, a labour ministry official told FE. 

At present, employees contribute 12% of their basic salary to the EPF, while the employer contribute 3.67% to EPF, 8.33% to employees pension scheme (EPS) and 0.5% to employees deposit link insurance scheme (EDLI). The government contributes 1.16% of the employee's basic salary to the EPS scheme. 
The finance ministry, which has not yet cleared a proposal of raising the minimum pension to R1,000 a month from the present R540 on the anticipation of an extra burden of R600 crore, is in no mood to approve the demand for re-defining compensation in this context to include all allowances apart from basic salary, which would raise its pension liability, even as the rate of contribution remains the same. 

The hike in basic salary may also not bode well with the EPFO as its pension liability will increase at a time when EPS scheme stares at a actuarial deficit of over R50,000 crore.

What the labour and finance ministries could agree to is to allow deduction of PF on the full compensation up to the minimum wage limit of R3,500 a month, without any splitting. This could result in a small increase in government pension liability, the official said. This will prevent companies from splitting minimum wages for evading PF payment. To curb firms from splitting wages into a multitude of allowances and commissions to evade PF contribution, the EPFO issued a circular last year that stipulated clubbing allowances paid "ordinarily, necessarily and uniformly" with the basic salary for calculating the provident fund contribution. But it created a furore as it implied a substantial reduction in take-home salary albeit the PF contribution would have gone up and the labour ministry later had to put the circular in abeyance. The ministry constituted a committee comprising EPFO officials, representative from trade unions and employers association to resolve the matter. The committee's report, which favoured the clubbing of allowances, was recently sent to the labour ministry for final vetting, sources said. 

Industry lobbies CII and FICCI have opposed the move as the rule change could raise the financial burden for the government and private companies. A hike in basic salary means the employers' contribution to EPF also goes up. Since, many companies are wary of changing the cost to the company (CTC), for the employees, the take-home amounts could come down. In case of public sector, the hike in basic salary means extra contribution from the employer -- which is either government or a PSU. 

"Organizations that are extending EPF coverage to employees receiving salaries above the mandatory EPF threshold of R 6,500 may choose to opt out, depriving the employees coverage under a globally renowned social security scheme. Most of the employees today join an organization above this statutory limit and they are voluntarily covered by the industry," said Ficci president Naina Lal Kidwai. 

While admitting the financial implication, All India Trade Union Congress national secretary DL Sachdev said the original demand was to amend the Unorganised Sector Workers Social Security Act to prevent splitting of minimum wages and paying PF on the entire minimum wages. Even that has been pending with the finance ministry, along with the proposal to raise the limit of basic salary to R15,000 from R6,500 for mandatory EPF coverage. 

A sudden jump in salary cost would only crimp the profit margin of India Inc ,already reeling under the worst slowdown in a decade. A lower take-home salary will also slash consumer demand and delay an early industrial recovery.

Finance Ministry Notification-Pattern of Investment to be followed by Non‐Government Provident, Superannuation & Gratuity Funds

Finance Ministry Notification F. No. 5 (88)/2006 –PR. Dated 14^th August 2008

The pattern of investment to be followed by Non‐Government Provident Funds, Superannuation Funds and Gratuity Funds is as follows:‐

 

	INVESTMENT PATTERN	% to be invested
(i)	(a) Government securities	Up to 55
	(b) Other securities the principal whereof and interest whereon is fully and unconditionally guaranteed by the Central Government or any State Government except those covered under (ii) (a) below.
	(c) units of mutual funds set up as dedicated funds for investment in Government securities and regulated by the Securities and Exchange Board of India;
	Provided that the exposure to a mutual fund shall not be more than 5% of the total portfolio at any point of time.
(ii)	(a) Debt securities with maturity of not less than three years tenure issued by Bodies Corporate including banks and public financial institutions;	Up to 40
	Provided that at least 75% of the investment in this category is made in instruments having an investment grade rating from at least one credit rating agency.
	(b) Term Deposit Receipts of not less than one year duration issued by scheduled commercial banks.
	Provided that the scheduled commercial banks must meet conditions of
	(i) continuous profitability for immediately preceding three years;
	(ii) maintaining a minimum Capital to Risk Weighted Assets Ratio of 9%;
	(iii) having net non‐performing assets of not more than 2% of the net advances;
	(iv) having a minimum net worth of not less than Rs. 200 Crores.
	(c) Rupee Bonds having an outstanding maturity of at least 3 years issued by institutions of the International Bank for Reconstruction and Development, International Finance Corporation and the Asian Development Bank.
(iii)	Money market instruments including units of money market mutual funds.	Up to 5
(iv)	Shares of companies on which derivatives are available in Bombay Stock Exchange or National Stock Exchange or equity linked schemes of mutual funds regulated by the Securities and Exchange Board of India.	Up to 15

 

New Pension System – Status as on 10th November 2012

The New Pension System (NPS) has been implemented for various sectors like Central Government, State Government, Private Sector and NPS-Life.  The status of NPS in these sectors as on 10th November, 2012 is as under:-

Sector	No. of Subscribers (Figures in lakhs)	Assets under Management (Rs. In crores)
Central Government	10.62	14,846
State Government	14.67	7,445
Private Sector	1.64	835
NPS-Life	13.05	344
Total	39.98	23,470

The number of subscribers is increasing every year in all the sectors.

Provident Funds, pension funds can soon invest in corporate bonds

Provident Funds, pension funds can soon invest in corporate bonds

The Finance Ministry said it will soon relax norms to enable pension and provident funds to invest in the corporate bond market, with a view to provide an additional funding source for infrastructure projects.

Addressing leaders from the infrastructure sector, Department of Economic Affairs Secretary Arvind Mayaram said the government is keen to develop the corporate bond market.

Among other things, he said relaxation of investment guidelines of pension and provident funds is required to enable the participation of a long term and stable class of investors in corporate bond market.

"This is one area (relaxation in investment norms) we are very actively looking at and we would be coming out with some new guidelines in the near future," Mayaram said.

While India has a very advanced G-sec ( government securities) market, the corporate bond market is relatively under-developed.

EPFO looks to invest in infrastructure debt fund

EPFO looks to invest in infrastructure debt fund

Keen to get better returns on its investments, the Employees’ Provident Fund Organisation is looking at putting a part of its Rs 5 lakh crore corpus in the finance ministry’s pet funding option for core sector projects — infrastructure debt funds (IDF).

The move, if it goes through, will also help the cash-strapped core sector that requires an estimated $1 trillion over the next five years.

“If we can invest in bonds of infrastructure companies such as Power Finance Corporation, we should also be able to invest in bonds of the IDF. There should not be any distinction,” a senior EPFO official said.

The EPFO, through the labour ministry, has already begun talks with the finance ministry on the issue, the official said. A meeting between secretaries of the two ministries is expected to take place later this month to discuss easing of the EPFO’s stringent investment pattern for this purpose.

EPF Interest Rate May Rise This Year

The interest offered by the Employees’ Provident Fund Organisation (EPFO) is likely to rise this year, say sources in EPFO. Currently, the interest rate stands at 8.25 per cent.

Earlier, EPFO’s interest rate had seen a steep cut — from 9.5 per cent for 2010-11 to 8.25 per cent for 2011-12. The rate for the current financial year has not been announced yet.

EPFO officials say the entire amount for the year is credited only after April 1, after the deposits for March 31 are received, taking into account the new interest rate. Therefore, while the delay would not affect depositors, those who withdraw their funds early in the year would not benefit in case the interest is raised.

PFRDA garnered Rs 15,466 crore under NPS till July: Finance Ministry

NEW DELHI: The government today said pension fund regulator PFRDA has garnered Rs 15,466 crore under the New Pension Scheme (NPS) as of July 2012. 

The subscriptions of the Central and state government employees under the NPS received up to July 31, 2012 is Rs 15,466.28 crore, Finance Minister P Chidambaram said in a written reply in the Rajya Sabha. 

Of this, Rs 10,741 crore was contribution from employees of Central government and Rs 4,725 crore from state governments, he said. 

"The performance of the NPS funds is satisfactory as it is in line with the market performance for the last three years and also for the current year," Chidambaram said. 

NPS is a government-run retirement scheme for individuals, including those in the unorganised sector. The scheme has been made mandatory for the government employees, except for those in the armed forces. 

In a separate reply, Chidambaram said death-cum- retirement gratuity is also paid to employees of the Central government under NPS. 

The government introduced the defined contribution-based NPS from January 2004 for Central government employees. Later, it was extended for all citizens in May 2009. The minimum annual contribution in the pension scheme is Rs 1,000. 

Interim Pension Fund Regulatory and Development Authority (PFRDA) has been given powers to supervise and regulate the NPS.

http://economictimes.indiatimes.com/personal-finance/savings-centre/savings-news/pfrda-garnered-rs-15466-crore-under-nps-till-july-finance-ministry/articleshow/16281946.cms

EPFO considering minimum pension of Rs 1,000

Subscribers of the retirement fund body EPFO may soon get a minimum monthly pension of Rs 1,000 after superannuation, if a proposal in this regard is cleared by the Finance Ministry.

"Labour Ministry has recently sent a proposal to the Finance Ministry to fix minimum pension to the EPFO subscribers at Rs 1000, no matter what their contribution is towards the scheme," a source privy to the development said.

 On the recommendations of the Employees Provident Fund Organisation (EPFO), the Labour Ministry has proposed to the Finance Ministry to either withdraw the two year bonus given to subscribers on completion of 20 years of service or bear additional burden of Rs 539 crore every year for fixing minimum pension of Rs 1,000.

At present every subscribers who completes 20 years of service is given benefit of additional two year bonus while tabulating his or her pension.

According the the EPFO, if this two year bonus is withdrawn, the exercise of fixing minimum pension at Rs 1,000 would be a revenue neutral exercise besides pensioners getting about 5 per cent relief.

However, if the Finance Ministry does not go for this alternative, the government would have to shell out Rs 539 crore every year in addition to its existing payout of Rs 994 crore annually for contributing 1.16 per cent of basic pay and DA to the pension fund.

According to data, as on March 31, 2010, there were 35 lakh EPFO pensioners of which 14 lakh get a monthly pension of less than Rs 500.

The number of EPFO pensioners getting a monthly pension of Rs 1,000 is 7 lakh. The data reveals there are cases where pensioners are getting a monthly pension as low as Rs 12 and Rs 38. 

Link to article - http://articles.economictimes.indiatimes.com/2012-08-20/news/33288005_1_minimum-pension-epfo-pensioners-retirement-fund-body