EPFO may tap idle accounts

Fund also considers using maturing gilts.

A solution to bridge the Rs 716-crore Employees Provident Fund Organisation (EPFO) deficit is in sight with the money lying in unclaimed accounts likely to be used for funding the gap arising out of the proposed 9.5 per cent interest rate for 2004-05.

At the end of March 2004, Rs 942 crore was lying in the unclaimed deposit accounts of the EPFO.

The two other options under the EPFO's consideration are to use the Rs 8,400 crore lying in the interest suspense account or to use a part of the government securities that are maturing this year to meet the liability.

These initiatives would, however, put pressure on the EPFO's earnings during subsequent years, Union labour ministry officials said. Besides, money in the suspense account accrues to members as interest every year.

The officials told Business Standard the three proposals would be put up for consideration by the EPFO's Central Board of Trustees when it meets to decide the interest rate for 2004-05. (The government today notified a 9.5 per cent interest rate for 2002-03 and 2003-04.)

"The government will need to amend the EPF Act in order to allow the EPFO to use money lying in unclaimed accounts. At present, this money is unclaimed but not unclaimable," said the officials.

EPFO accounts that are not operational for a period of three years are classified as unclaimed accounts. Paragraph 72 (6) of the EPF Scheme mentions the existence of such accounts but does not specify any limitation period.

With the EPF Act silent on what to do with this money, the accruals to these accounts along with the interest get accumulated over the years. The EPFO will propose to the CBT a time period within which the money can be claimed failing which an account will become dormant.

The EPFO had earlier estimated that a 9.5 per cent interest payout to its over 40 million subscribers could translate into a deficit of Rs 927.15 crore but after recovery of certain dues the projected deficit could be reduced to Rs 716 crore.

The interest on the EPF has become attractive in the falling interest rate regime. Thus, a number of people prefer to leave their money with the EPFO and do not come forward to claim it while exiting the scheme. They feel that the money is not only safe but is also yielding better returns than other saving instruments.

"But this does not mean that the money is with us for good. Every year, about Rs 40-50 crore is claimed from accounts that have been termed unclaimed," said an official.

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Digging deep

Options before the EPFO in bridging a Rs 716-cr deficit

SECURITIES Use money from matured securities or sell securities at a premium: Can create future fund shortage

INTEREST Use a part of the interest suspense account. Interest belongs to members and has to be credited to their account

IDLE ACCOUNTS Set a limitation period for unclaimed accounts and use the money to fund deficit: Requires Amendment to the EPF Act

Editorial comment: Spot the pensioner