Q) The Retirement fund body Employees’ Provident Fund Organisation has outlived its utility; it must be downsized. Comment. (150 words)
Why this question?
- Retirement fund body Employees’ Provident Fund Organisation has recommended that the government pay an 8.5% interest to subscribers for 2019-20 as announced earlier, but in two instalments instead of the usual one as market volatility has affected its income from equity investment. Thus the question.
Introduction: Mention in brief about EPF scheme and EPFO.
Body: Mention the following concerns with EPF scheme
- Lower returns: We are now entering a lower interest rate scenario due to slowing growth.Since the EPFO can't invest in equity or gold or other assets, your returns will trend down.
- It will increase pressure for government bailouts: The trustees keep asking the government to top up the money, which can only increase the fiscal deficit.
Way forward: Mandate the EPFO to only manage contributions upto a certain amount - leaving the balance to be managed by the National Pension Scheme (NPS), depending on what the individual employee wants.
Conclusion: The EPFO needs to be contracted and focused on the poor where government guarantees are important. The rest should be migrated to the NPS.