Tuesday, September 30, 2025
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Budget 2021: Labour Ministry recommends reducing PF Contribution

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Budget 2021: Labour Ministry recommends reducing PF Contribution

The Ministry of Labour and Employment has suggested bringing down the rate of contribution by companies towards the pension and provident fund scheme administered by the EPFO in the upcoming union budget 2021.

It may increase the take-home salary of the employees but may cause loss to the pensioners. The Labour Ministry has suggested reducing both employee and employer contribution from 12% to 10%.

The Ministry has also suggested that making the pension for EPF members practical, pension to be made proportional to PF contributions, saying that the pension should be received according to the contribution. If both the suggestions are accepted, in that case, take-home salary will increase, but the pension of EPFO pensioners will decrease.

According to media reports, EPFO has more 23 lakh pensioners, who get a pension of Rs 1,000 every month. While their contribution to the PF is even less than one-fourth of it. The officials said if it continues to happen, it will be difficult to manage in future.

This is why ‘Defined contributions’ should be adopted to make it more relevant. In August 2019, EPFO’s Central Board of Trustees (CBT) has demanded to increase the minimum pension to Rs 2,000 to RS 3,000 as per pension scheme, however, it was not implemented. As per sources, the government will have to bear an extra expenditure of Rs 4500 crore upon implementing a minimum pension of RS 2,000 and if it is increased to Rs 3,000, it will cost the exchequer massive Rs 14,595 crore. 

As per officials, a big portion of EPFO amount invested in the share market also gave negative returns due to Covid 19 pandemic. Of the Rs 13.7 crore EPFO corpus, only five per cent or Rs 4600 crore was invested in the share market, said officals.

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