Looks like the Employees' Provident Fund Organisation (EPFO) is best at one thing, making headlines for all the wrong reasons. According to a report published in the Economic Times today, EPFO has a gap of Rs 1,336 crores in its books. This discovery was made by Comptroller and Auditor General (CAG).
The discrepancy is likely to grow further, the report said.
What this means for you: Simply put, it’s nothing short of bad news because this actually means you will get lower returns on EPF savings for 2012-13, and there is a good possibility that the lower returns could also spill over to year 2013-14 as well. In fact, the EPFO is expected to increase interest rates for 2012-13 to 8.5 percent from 8.25 percent last year. Media reports have said that an announcement is likely today. According ET report, CAG, had the EPFO’s books been in shape, it could have been able to give 9 percent interest rate.
How this happened: According to CAG, in 2011-12 the EPFO updated their pending accounts. Due to this, it paid out Rs 1,336 crore more than what they actually had with them. So, in short in 2011-12, the fund balance of Rs 22,461 crore was in the account where they park income for investments, that is interest suspense account (ISA). But, EPFO credited Rs 23,797 crore into members' accounts during the year.
This resulted in a negative balance of Rs 1,336.12 crore in the ISA, the ET report said. “Exhibition of negative balance in the balance sheet resulted in understatement of total liabilities and assets," the auditor said. The CAg has been unable to form an opinion on the 'correctness' of the amount paid out to members "in the absence of details and break up" of interest credits,” the ET report said. Read the whole ET story here.
Making matters worse: EPFO still has 8.74 lakh accounts "pending for updation" on March 31, 2012, and updation of these will further increase the negative balance. Which means, it will further decrease the interest of the EFPO accounts next year.
What EPFO says: It has justified. The EPF rate is declared by comparing estimated interest income and liability. "Since this exercise involves assumption of certain figures, the actual result may be different."
What we say: Gone are the days when you could rely on EPF for your retirement needs. Ensure, you do you own retirement planning with tools like Public Provident Fund, National Pension Scheme and a good mix of debt and equity mutual funds. If possible, approach a certified financial planner to plan your retirement.