EPFO income dips as deposits are deferred, withdrawals rise

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The Employees Provident Fund Organisation (EPFO) is set to face an income crisis, which will have a direct bearing on millions of its subscribers’ PF earnings in 2020-21.

A million workers have already withdrawn their EPF savings in last five weeks to tide over income loss caused by the ongoing lockdown imposed to prevent the spread of the coronavirus. Authorities at the EPFO head office have sent a message to field offices asserting that a million more workers are likely to withdraw their savings soon.

The massive number of withdrawals, which is an indication of the hardship workers are facing in a crisis time, is an outflow for a pension fund such as EPFO. The retirement fund body has already settled about ₹3,000 crore of claims by now. The number could double to ₹6,000 crore if the internal estimates of the EPFO come true, two government officials said, requesting anonymity.

This massive withdrawal under the pandemic rule implemented in April would be a big dent on EPFO’s overall annual accruals, especially as the government has allowed the establishments to delay the deposit of EPF deductions to boost their liquidity in the short run and help companies overcome cash flow constraints. The Union government has allowed companies to submit EPF dues of March 2020 by 15 May, a 30-day grace period, while April dues are likely to be deposited by 15 June.

The two-month delay will effectively give a ₹25,000 crore liquidity boost to organisations. Every month, companies are required to deposit 24% of basic and house rent allowance deductions as EPF contributions, 12% of employees share and 12% employers share, as part of a mandatory retirement saving deductions.

“This also means a late deposit of around ₹25,000 crore in the EPFO kitty. Club this with the ₹6,000 crore pandemic withdrawals EPFO is expecting, and it accounts for 20% of the annual accruals of the organization,” said the first of the two officials mentioned above.

“Late deposit of EPFO corpus means losing time in investments. This delay in investment will fetch less return and impact interest payout to millions of workers,” said the second official. The late deposit of EPF dues in April and May also means that a portion of the equity investments of EPFO may not be able to catch a market when it is low, he added. EPFO invests 15% of its annual accruals in equity and the rest in the debt market.

“The interest rate for 2020-21 will take a hit as there will be less earnings because of outflow and delay in deposits and as well as market conditions ” said the first official.

The Centre has allowed EPFO subscribers to withdraw up to 75% of their PF savings or three months of basic wages and dearness allowance, whichever is lower, under a new rule promulgated to deal with hardships during the crisis.

“Heartiest congratulations to all officers and staff for crossing 1 million beneficiaries mark for covid-19 settlement alone. Our total settlement is soon going to reach 2 million beneficiaries. Great service to nation during this crisis period despite all odds,” read a message from the EPFO head office in New Delhi to field offices.

As it is pandemic time, EPFO is making all efforts to provide relief to its subscribers and companies, said the first official. This will have an impact when the “EPFO sits down to calculate its earnings later this year before announcing an interest rate”, he added.

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