Bonanza for the salaried: PF rates hiked to 9.5%

In what may be a windfall for crores of employees in public and private sector, the Provident Fund Trustees today decided to give a higher interest rate of 9.5 per cent for 2010-11 on their retirement savings.

The steep one percentage points increase has taken the interest on PF deposits of 4.71 crore (47 million) organised sector workers to a five-year high from the current level of 8.5 per cent.

The decision to raise the interest rate was taken by the Central Board of Trustees, the highest policy making body of the Employees Provident Fund Organisation, sources said.

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Although the decision to provide 9.5 per cent interest rate would result in a deficit of about   1,600 crore (  16 billion), the same would be made good by a surplus of   1,731 crore (  17.31 billion) in the interest suspense account of the EPFO.

The recommendation of the CBT, headed by Labour Minister Mallikarjun Kharge, will be forwarded to the finance ministry.

The finance ministry, which notifies the provident fund interest rate, usually accepts the recommendation of the CBT.

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A provident fund is created with a purpose of providing financial security and stability to elderly people.

Generally these funds are formed / started when one starts his/her career and is withdrawn on retirement. The contributions/ investments are made on a regular basis (monthly in most cases).

The quantum of investment may vary. The investments made by a number of people / employees are pooled together and invested by a trust.

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EPF (Employees Provident Fund)

This is implemented by the Employees Provident Fund Organisation of India. Any company with over 20 employees is required to register itself with the EPFO.

Twelve percent of the Basic, DA, and cash value of food allowances has to be contributed to the EPF account.

If one changes company, then the EPF account can be transferred to the new company.