A proposed increase in the Provident Fund (PF)’s interest rate to 8.65% from 8.55%, payable on members’ accumulations for 2018‒19 could impact employers’ year-end long-term benefits, liabilities and costs. The increase was recommended by the Central Board of Trustees of the Employees' Provident Fund Organization (EPFO), which administers the compulsory contributory pension and insurance scheme. Before taking effect, the proposal must be approved by the Ministry of Finance and sent on to the Ministry of Labour.
Exempt provident funds are defined benefit schemes for accounting purposes, so employers will need to assess the impact of the liability increase, including changes to the trust’s long-term assumptions. The increased PF rate could reduce trusts’ reserves if their income falls short of 8.65%, requiring sponsoring employers to provide additional funding. However, trusts could choose to adjust the portfolio (fixed income and equity) to bridge the shortfall.
The actuarial impact will depend upon the interplay of multiple factors, such as: