The issue is not the interest rate. It is the lack of political will to reform EPFO. Other than the administrative overhaul, which has been ticking at a slow pace since 2003, no concrete action has been taken. Increasingly, the EPFO is resembling the BCCI — lots of meetings and noise, but no hard decisions. This year the EPFO trustees met seven times before they decided on 8.5 per cent returns, even though the Fund earned less. Contrast this with the EPFO in Nepal, which has slashed the rate of return from 11 per cent in 1998 to 5.25 per cent at present to make sure what it was paying was in sync with its earnings.

The labour ministry and EPFO board continue to sit on the finance ministry’s revised investment norms which could allow the EPFO to invest 10 per cent in equity-linked mutual funds and 5 per cent directly into equities. The finance ministry had relaxed the norms in January 2005. The trustees are not in favour of investing in corporate bonds. While EPFO continues to dither, the Pension Fund Regulatory and Development Authority is setting up the New Pension System for government employees based on competitive fund management and multiple investment options for members. In the case of EPFO, ordinary citizens continue to be dragged into this scheme due to its mandatory nature. Why shouldn’t an employee in the private sector have the option to switch his EPF money to the New Pension System, which offers the prospect of better investment management, therefore higher returns?

... contd.