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EPFO opportunity PDF Print E-mail
Thursday, 30 May 2013 00:00
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Use the chance to make EPFO contributions voluntary

 

Industry associations such as Ficci and CII have opposed the proposal to force employers to link provident fund contributions to the total salary instead of to just the basic salary as at present. Given that this will dramatically hike the PF contributions of companies—till such time the salary structures are revised to take this into account—their opposition was only to be expected.

The industry lobbies, however, haven’t asked the basic question: why should precious savings of employees be put in an organisation that, were it not for the tax benefits, delivers negative real returns; and does not even know how many unique clients it has or even the extent of the hole it has in its pension scheme—the last estimates based on an unrepresentative sample, are about R50,000 crore in FY10. Under the circumstances, the industry should be asking why should it double or treble the annual contributions to the EPFO, which, it must be added, charges the highest commission of around 5% in the business. Indeed, industry would have done better by asking the government to allow employees whose basic salary is more than R6,500 per month—or the R15,000 ceiling the government is contemplating—to move out of EPFO to new pension system (NPS) where more pro-active fund managers can be chosen and individuals also get to have part of their portfolio invested in equity. Though the government allows the EPFO to invest in equity, its trustees are not in favour of this. While these are some issues in terms of depository charges that may need rationalising, the biggest issue is that NPS is not tax-free at the time of withdrawal. There is no reason for this discriminatory treatment, nor for forcing employees to mandatorily invest large parts of their incomes in the EPFO.

 
 

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