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Hr NewsStatutory Compliance

Should EPF interest rate be cut due to fall in bond yields? Here are 3 expert views

Source | The Economic Times : By Hiral Thanawala

The Central Board of Trustees of the EPFO will meet next month to decide the EPF rate for 2017-18. Last year, the EPFO had cut the rate to 8.65%. Now interest rates have slipped further. ET Wealth reached out to three experts for their views on whether the rate should be cut.

Sanjay Sachdev

Should EPF interest rate be cut due to fall in bond yields? Here are 3 expert views

 

Chairman, ZyFin Funds & Global Member of Financial Planning Standard Board, USA says YES
The EPFO is trying to be benevolent by offering higher interest rates than the market, by dipping into its own reserves.

EPF interest rates should be reduced to reflect the underlying yield of the EPFO investment portfolio. Last year, the average yield of the debt portfolio for EPFO was around 7.75%, but the interest declared for subscribers was 8.65%.

With new government employees now moving to market-linked returns through the NPS, EPFO is trying to be benevolent by offering higher interest rate than the market by dipping into its reserves.

Lower investment returns and increasing life expectancy is putting a strain on pension systems across the world. Mercer’s Global Pension Index, which measures the health of pension systems across 30 countries, reflects that there is an increased need to build in expectations of reduced investment returns in various country models.

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