People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 38

September 19, 2004

A Fact Sheet On EPFO & Social Security


TODAY, the Employees’ Provident Fund Organisation is hot in the news for reasons other than that of social security. The Central Board of Trustees (CBT) with its new chairman, following the change in government at the centre, was preoccupied with the interest rate issue and could not take up several other pressing issues.

The Unorganised Sector Workers Social Security Scheme (USWSSS), launched with undue haste by the previous NDA regime has, as predicted earlier by the CITU, turned out to be a serious scandal. Despite the hype generated in the run up to the elections to the 14th Lok Sabha, of bringing 37 crore workers in the unorganised sector under the protective umbrella of this so-called social security, the EPFO which was arbitrarily directed by the then labour minister to launch the USWSSS as a ‘pilot scheme’ has only enrolled around 3,500 members till July this year. According to the EPFO, the total collection is around Rs 17.5 lakh, of which around Rs 4.3 lakh only is available in the Pension Fund and the balance has been remitted for insurance benefits. The Consultant Actuary of the EPFO had examined the scheme and observed: “an amount of Rs 601 shall be available in member’s account towards pension fund contribution for each year failing which the fund will not be adequate to meet the liabilities.” The EPFO promptly referred the issue to government of India, being sponsor of the scheme, to examine the sustainability of the scheme. The government of India, during the NDA regime, had contributed only a token amount of Rs 1 lakh for the year 2003-04, while the EPFO had spent nearly Rs 13 lakh till 31.3.2004.


The UNWSS scheme is not a scheme under the EPF Act. There is no statutory backing for this scheme. The contingent liability under the scheme cannot devolve on the EPFO. There is confusion over the role of the EPFO in this USWSS scheme – whether it is a facilitator or an active player in its implementation. But, the EPFO has not only been implementing the scheme at the behest of the then minister of labour but also allotting National Social Security Number to the workers under this scheme as well, for which the EPFO has no mandate even. The EPFO is of the view: “Even now for lack of a clear directive on the future course of action in relation to the scheme, the scheme is not being adequately pursued by our (EPFO) functionaries in the field. Hence a view has to be taken by the government on the future of the scheme and a decision has to be taken as to whether the same has to be abandoned or implemented. In case of the latter, a review of the funding as well as implementation arrangement would be necessary”.


At the same time, the previous NDA regime itself had commissioned an Asian Development Bank (ADB) Technical Assistance study on Pension Reforms for the Unorganised Sector with a consulting team of three international and two domestic consultants. “The government has also stressed that the arrangements must be budget neutral.”


Thus, the USWSS scheme is a cruel hoax played on the unprotected gullible unorganised workers of the country. The present UPA government is also persisting with this Technical Assistance programme under the aegis of the ADB and the fate of the USWSS Scheme is now anybody’s guess!


On the question of launch of the National Social Security Number, the EPFO had indulged in a fraudulent gimmick, involving even the high office of the President of India, on which the prime minister has been requested to order an enquiry.


The Employees Pension Scheme, 1995 needs a thorough review in view of the different assessments emanating from the actuarial valuations made. Though eight valuation periods have expired as on March 31, 2004, only six valuations (up to 31.3. 2002) have been completed.


While the government gave vague assurance of taking up the question of cost of living index linked pensionary benefits during the annual valuations contemplated as part of the Pension Scheme, the first four valuations yielded only a paltry 4 per cent relief on each occasion.


The benefits under EPS 1995 have been insignificant, when compared to diversion of 8.33 per cent from employers’ contribution to the Provident Fund. Yet, the actuarial exercise undertaken by the EPFO valuation has put out an alarmist view that the Fund is in deficit of Rs 17,126 crore as on 31.3. 2002. The Actuaries have mooted proposals aimed at further increasing the rate of contribution and reducing the benefits. This has led to widespread speculations on the sustainability of EPS, media reports predicting that EPFO is going the UTI way! The process of actuarial valuation is statistical involving probabilistic assumptions and the projected deficit is not a present liability but only an assumed contingent liability.


The number of members exiting from the EPF has been on the increase, as revealed by the following figures of ceased members:


Un-exempted Establishments

Exempted Establishments




































(Though there was a slight decline during 1999-00, the figures have again increased to 1998-99 levels during 2001-01.)

As against this huge figure of over 1 crore members having exited the EPF since 1995, the total number of EPF members availing benefits from the Employees’ Pension Scheme, under different classifications of pension, as on March 31, 2002 is only 9,33,561, excluding the cases of children pension, as it is payable concurrently with the spouse pension. (Source: Annual Reports of the EPF Organisation)


Thus, with less than 10 per cent of the exit cases being extended pensionary benefits, neither the false alarm that is created nor the proposal to hike contribution and scaling down of benefits is tenable. Surely, the soft interest regime and reduction in the administered rate of interest are casting a long shadow on the Pension Scheme. The immediate need is to review the EPS 1995 to make it beneficial for the workers, if the government concerns towards a social safety net for workers have any meaning.


The EPFO had undertaken an ambitious Business Process Restructuring named “Reinventing EPF India”, which has run into serious ‘project slippages, bottlenecks and accumulated delays’ even according to the EPFO, after incurring a total expenditure of over Rs 18 crore! Added to this is the expenditure of over Rs 25 crore for the setting of a National Social Security Registry, besides over Rs 6 crore on publicity in the name of Golden Jubilee celebrations.


The EPFO under the earlier NDA regime had resorted to various measures like bifurcation of Regional Offices, creation of new posts, including that of a new cadre of Social Security Assistants, which are a drain on resources of the EPFO. On the other hand, at the ground level the staff is overburdened with the ever-increasing workload without corresponding staff requirements in place.


All these call for urgent measures by the government taking into confidence the CBT and the central trade unions on policy issues. Unless this is taken up urgently it is difficult to stem the rot that has set in.

(This note was released by the CITU secretaries W R Varadarajan and Dipankar Mukherjee at a press conference in New Delhi on September 10)