The  Central Board of Trustees (CBT), EPFO’s apex decision-making body, in a meeting held at Hyderabad on August 21, 2019, took decisions such as restoration of commuted value of the pension to pensioners after 15 years of drawing commutation. Who will manage EPFO corpus, Where will equity investments of EPFO be made? This article gives an overview of Key decisions taken in the EPFO meeting.

Key Decisions taken in the EPFO meeting

The key decisions that were taken in the CBDT meeting held at Hyderabad on August 21, 2019 include:

• Restoration of commuted value of the pension to pensioners after 15 years of drawing commutation.
• For the default of IL&FS Ltd, the nomination of 3 officers of the investment division of EPFO was done by CBT to attend the debenture holder’s meeting in future.
• A decision to withhold any further investment in private company’s bond was approved with the consideration of one of the two required ratings from Care, Icra, Crisil, and India Ratings
• Trustees approved the decision to invest in exchange-traded fund (ETF). Proposal to divide the funds equally between Nifty 50 and Sensex ETFs was approved.
• Nomination of members from employee’s side to review the working of portfolio managers was approved.
• Approved transfer of GSPC NCDs to Gujarat State Investment Ltd.

What is Commutation of Pension?

Commutation is defined as giving up part or all of the pension payable from retirement in exchange for an immediate lump sum. The commutation of pension is taking the lump sum amount to an employee from his accumulated pension corpus on retirement. So if a person opts for commutation then he will get the monthly pension on the remaining amount after commutation. So the monthly pension amount is reduced. It is basically a trade off. If you commute, you get a tax-free and lump sum amount but your pension gets reduced.

Let us understand what the commutation of pension.

• Let us assume that Shyam’s monthly pension is Rs. 6000
• one can commute 1/3 of the pension, which in our example equals 2000.
• At retirement time one can take 15 years of reduced pension in a lump sum, which in one example is 3,60,000(2000*12*15) .
• This commutation is tax-free
• One will get remaining amount at a monthly pension, which in our example is 4,000 Rs.
• After the completion of the period of 15 years, the original amount of pension which you would have got without commutation would be restored. In our example after 15 years you would get Rs 6,000 again.

This would benefit about 6.3 lakh pensioners those who had opted for commutation and had got a lumpsum amount at the time of retirement before 2009.  This would require an amendment of the act and will take time.

The provision for commutation of pension was withdrawn by the EPFO in 2009. So it is unclear whether the board will restart the commutation of Pension.

Overview of Pension contribution to EPF

12 per cent of the employee’s basic salary goes directly towards EPF, 8.33 per cent of the employer’s share ( out of 12 per cent of employer share) goes into the employee’s EPS 95.

The amount that goes into EPS 95 is capped at Rs 1250 a month as the pensionable salary is also capped at Rs 7,500 a month.

An employee can withdraw the amount that was diverted to EPS anytime on leaving the job but only before completion of 10 years. Else, the employee gets a lifetime pension only if he or she is a member of EPS95 for at least ten continuous years of service.

From the age of 58, the pensioner starts getting pension after submitting Form 10-D to the Employees’ Provident Fund Organisation( EPFO).

EPFO & ILFS

EPFO’s exposure to IL&FS stands at Rs 574.73 crore, according to the estimates of the Standing Committee on Labour. The exposure of exempted companies — those who operate their employee accounts on their own — is additional to the amount mentioned in the estimates.

In May 2010, IL&FS raised Rs 350 crore by selling bonds directly to the EPFO with those securities offering 8.96%, with 15-year maturity.On February 22, 2011, EPFO bought Rs 225 crore worth of bonds to the pension fund, offering 9.70% with a 10-year maturity, sources said.