Recent intimation from the Employees Provident Fund Organisation, asking provident fund benefits to be computed not just on the basic salary and DA of employees as is currently done, but including all allowances is completely uncalled for. This will force salaried employees to forgo a larger part of their salary upfront in the form of deductions - which will reduce their take-home pay. Such a cut will be particularly damaging at a time when the salaried classes have already been badly hit by meagre annual increments and spiralling price rises over the last few years.
The provident fund authorities have sought to justify this move by arguing that employers deliberately keep basic salaries low, thereby reducing their own provident fund burden. A large part of employees' salaries is instead composed from a range of allowances. However, this is a one-sided view as employees also prefer to have a larger current component in hand, rather than allow provident fund authorities to sweep up around a quarter of their gross earnings. This is especially relevant given the less than attractive returns provided by the employees' provident fund and the archaic procedural requirements which have blocked Rs 22,637 crore in inoperative accounts with no claimants.
Consider the present scenario- though the provident fund organisation has 61.6 million accounts and a corpus of around Rs 1,62,980 crore it could pay an interest rate of only 8.5% in 2008-09 by using its contingency reserve fund. This interest rate was raised to 9.5% in 2010-11 by utilising funds in the interest suspense account. In sharp contrast, pension fund managers of central government employees under the New Pension Scheme were able to efficiently generate higher returns ranging from 8.1% to 16.4% during the same period.
The provident fund authorities have sought to justify this move by arguing that employers deliberately keep basic salaries low, thereby reducing their own provident fund burden. A large part of employees' salaries is instead composed from a range of allowances. However, this is a one-sided view as employees also prefer to have a larger current component in hand, rather than allow provident fund authorities to sweep up around a quarter of their gross earnings. This is especially relevant given the less than attractive returns provided by the employees' provident fund and the archaic procedural requirements which have blocked Rs 22,637 crore in inoperative accounts with no claimants.
Consider the present scenario- though the provident fund organisation has 61.6 million accounts and a corpus of around Rs 1,62,980 crore it could pay an interest rate of only 8.5% in 2008-09 by using its contingency reserve fund. This interest rate was raised to 9.5% in 2010-11 by utilising funds in the interest suspense account. In sharp contrast, pension fund managers of central government employees under the New Pension Scheme were able to efficiently generate higher returns ranging from 8.1% to 16.4% during the same period.
In addition, employees' gains from pension payments made under the provident fund scheme too have been meagre. Numbers for the end of the financial year 2012 show that 4.1 million pensioners received an amount of Rs 4,475 crore - which translates to an average annual pension of just Rs 10,907. The proposal to raise the minimum pension to Rs 1,000 per month has been stuck in red tape so far. Given such a dismal scenario, it therefore makes little sense for employees to allow the provident fund authorities to appropriate a major part of their earnings in difficult times. Instead, the government should allow a free market to operate properly and salaried employees to make their own choices.
Source:-The Times of India
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