Govt may cut EPF Rate by 1.25%

About six crore employees could be in for a rude shock with the government considering a 1.25% cut in the Employees’ Provident Fund (EPF) rate for this year -- the first time in a decade that the returns on these retirement savings would be slashed by more than a percentage point.

Labour minister Mallikarjuna Kharge had promised workers that the Centre would try to raise the EPF rate for 2011-12 beyond the 9.5% paid last year.

But now, a rate of 8.25% is on the cards.

 An official close to the development told ET that the primary reason for the proposed reduction in the EPF rate is the decision to pay 9.5% to members last year.

Though the scheme’s income for 2010-11 supported a payout of 8.5% to workers, the government decided to raise the rate to 9.5% after it found ‘hidden’ reserves of around Rs 1,700 crore that had accumulated in its coffers over the years. But it now emerges that these reserves were insufficient for supporting the 1% largesse declared by the government, forcing the provident fund office to dip into this year’s income as well, in order to honour its commitment of a 9.5% rate for 2010-11.