Customer orientation
Financial Express

The employee provident fund (EPF) is in the news again. The finance ministry has questioned the claim that the fund’s deficit, upon closer examination, has turned into a surplus, thus allowing the interest payable to be raised from 8% to 8.5%. Since the rate is determined by the management at the beginning of the year, before the interest actually accrues to the fund, it is not possible to know what the actual realised value is, and has to be left to the judgement of auditors. The broad operating framework, however, is known. It was prepared in 1952 when all interest rates were state-administered and it was possible to make such judgements accurately. This is no longer the case. In fact, it is clear that the system should have been reformed back in 1993, when interest rates in the larger economy were freed for the market to determine. But the problem is that the Employee Provident Fund Organisation (EPFO) is way behind the times.

For the sake of the EPF, the very way in which the interest rate is determined should be changed as soon as possible. Actually, that is not the only thing the EPFO needs to change. The 1952 Act needs to be amended, and the fund’s management has to improve, with customer service becoming the prime focus of operations for it to justify its existence in the modern world of financial planning. The fund should start issuing individual account statements, like those sent by banks on a monthly basis, with a web interface for anyone to check his balance. The member has a right to know if the deduction made from his salary for a PF contribution has actually been credited to his account. Today’s framework allows no such thing, and this makes space for fraud. Also, the EPFO should invite competitive bids to engage fund managers who would charge lower fees, cut expenses and deliver more (as with the Coal Miners’ Provident Fund example). If higher returns within safety limits can be obtained through smarter market operations, there is no reason why EPF contributors should not gain from this, just as other investors do. Last but not least, the fund’s withdrawal processes need to be made swifter and friendlier. As of now, it operates more as a tax-saving device than an old age security scheme. This is a shame. Urgent change is needed. Far too many people depend