EPF Board okays ETF reinvestment norms, employer amnesty scheme

• A redemption policy for investments in exchange-traded funds (ETFs) and reinvestment of 50 per cent of those redemption proceeds into ETFs, along with an amnesty scheme for employers to voluntarily disclose and rectify past non-compliance without penalties was approved by the Central Board of Trustees of the Employees’ Provident Fund Organisation (EPFO).

Highlights:

• The Employees’ Provident Fund Organisation (EPFO) held its 236th Central Board of Trustees (CBT) meeting on Saturday, unveiling several measures to enhance efficiency, investment returns, and compliance. Key highlights include changes in ETF redemption policies, introduction of an amnesty scheme, and advancements in claim settlement processes.

1. ETF Redemption Policy and Reinvestment Strategy

• Changes in Redemption Period:
  • The EPFO plans to increase the redemption period for Exchange-Traded Funds (ETFs) from 4 years to 7 years over the next six years. This extension aims to enhance yields by allowing investments to mature for a longer duration.
• Reinvestment of Redemption Proceeds:
  • 50% of the redemption proceeds will be reinvested in ETFs, including Bharat 22 and CPSE ETFs.
  • The remaining 50% will be allocated to other asset classes such as government securities and corporate bonds, following the existing investment norms.
• Objective:
  • These measures aim to balance short-term returns with future equity growth prospects and improve the EPFO’s overall investment performance.

2. Amnesty Scheme for Employers

• Purpose:
  • The EPFO Amnesty Scheme 2024 provides an opportunity for employers to voluntarily disclose and rectify past non-compliance without penalties or legal consequences.
• Implementation:
  • Employers need to submit a simple online declaration to avail of the scheme.
  • The initiative particularly targets Micro, Small, and Medium Enterprises (MSMEs), which might face hurdles due to past non-compliance while opting for the Employment Linked Incentive (ELI) scheme.
• Goal:
  • To encourage compliance and support the Ministry of Labour and Employment’s plan to implement the ELI scheme announced in the Budget 2024-25.

3. Claim Settlement and Interest Crediting

• Interest Crediting Changes:
  • Interest will now be credited up to the date of claim settlement, a shift from the current practice of calculating interest only up to the end of the previous month for claims settled before the 24th.
• Increase in Auto Claims Limit:
  • The limit for auto claims settlements has been raised from ₹50,000 to ₹1 lakh.
  • This applies to advances for purposes such as housing, marriage, and education.

4. Centralised Pension Payment System (CPPS)

• The Centralised Pension Payment System (CPPS), currently in its pilot phase, is scheduled for a December 31, 2024 launch. The system aims to streamline pension payments and ensure timely disbursements.

5. Performance Metrics

• Claim Settlements:
  • In FY 2023-24, the EPFO processed 4.45 crore claims, disbursing ₹1.82 lakh crore.
  • For FY 2024-25 so far, 3.83 crore claims have been settled, amounting to ₹1.57 lakh crore.
• Auto Mode Settlements:
  • A total of 1.15 crore claims have been settled automatically this fiscal year.

6. Investment History and Future Plans

• Since August 2015, the EPFO has gradually increased its equity exposure:
  • Starting at 5% of incremental flows.
  • Raised to 15% in 2017.
• Investments are guided by a notified pattern of investment issued by the Ministry of Labour and Employment.

Prelims Takeaways

• Exchange-traded funds (ETFs)
• Centralised Pension Payment System (CPPS)
• Employment Linked Incentive (ELI) scheme.
• EPFO Amnesty Scheme 2024