Fixed Income
EPFO rebuts finance ministry claims over returns from NPS

EPFO disagrees with finance ministry's proposal to encourage its subscribers to shift to NPS and claims its own EPS provide better returns than the new pension system

Rebutting the claims of finance ministry over the new pension system (NPS), retirement fund body Employees' Provident Fund Organisation (EPFO) has said NPS does not provide better returns than its employees’ pension scheme-1995 (EPS).

 

EPFO also said it disagrees with finance ministry's proposal to encourage its subscribers to shift to NPS. 

 

In response to a letter written by financial services secretary to labour secretary, the EPFO said, "If we take return of EPS as indicative return on the fund managed under EPS, then the annualised return between May 2009 to May 2013 will be 10.47%, which on the face of it, is higher than the return declared by NPS in its scheme for the central government."

 

Finance Ministry has written to the Labour Ministry saying that "The subscribers (of EPS) may be given an option to either remain with EPS or join NPS with the same contribution."

 

The ministry argued that NPS, which is self-sustaining pension system, could be a good substitute for EPS and would be beneficial for subscribers as they would get decent returns and adequate pension wealth.

 

Moreover, the Finance Ministry said, "The government would be free from any open ended and financially unsustainable liability of EPS..."

 

Disagreeing with the contention of the Finance Ministry, EPFO said that EPS scheme provides social security for lower income group people in their old age. In addition, it also provides pension to widow, children and dependents in case of death of the subscriber.

 

Under the EPS scheme, many interim benefits are provided. Subscribers can withdraw their contribution towards pension while withdrawing his or her EPF money. There is a lock in period of 15 years in NPS.

 

Moreover EPS subscribers get bonus of two years on completion of 20 years of service and there is provision of commutation or part withdrawal also. That is not available in NPS.

 

EPS's corpus size stood at Rs1.83 lakh crore while the same under NPS was at Rs29,852 crore as on March 2013.

 

EPFO has a subscriber base of over five crore and manages PF corpus of Rs3.7 lakh crore excluding the pension fund of Rs1.83 lakh crore.

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COMMENTS

M G WARRIER

3 years ago

NPS, in effect is a non-starter and is trying to pollute existing social security systems in its anxiety to remain at centre stage. If some proof is needed, please refer to the Business Standard interview(August 18) in which PFRDA Chairman has asserted that ‘NPS is designed to offer pension to every worker.’ Perhaps, the questions posed by Sreelatha Menon in the interview were more informative than the evasive and vague answers given by the PFRDA Chairman. His counter to the first question, ‘How can I have a view contradictory to what he (FM) says?’ set the tone and content of his defence of NPS.

Though government and to some extent the media have been marketing NPS as a solution for social security problems of future ‘senior citizens’ of India, it is common knowledge that the scheme was introduced through back-door to get over the impossible task of starting to make provision for an estimated pension liability of nearly 4 lakh crore rupees when 6th Pay Commission was finalizing its report in 2006.

Other than the new central government employees who joined service from January 1, 2004 and others (state government and PSU employees) for whom NPS was made compulsory, effective various dates thereafter whose contribution adds up to about 85% of the Rs35,000 crore corpus mentioned by PFRDA Chairman, the receipt from the 90 per cent workforce outside the organized sector so far is admittedly too low at Rs5,000 crore.

Now, the effort will be to swallow EPFO and other organizations or departments which are otherwise doing well. It is time for a mid-term review of the whole concept of NPS.

BHEL June quarter results were a shocker, says Nomura

This is just the start of a bad earnings cycle for BHEL- execution problems are expected to continue, if not escalate, while competitive pressures and lower utilisation will impact margins further, over the coming years-Nomura

State-run BHEL’s June quarter results were shocking-24% year-on-year (yoy) decline in revenues clearly highlights the extremely challenging state of power sector, says Nomura Financial Advisory and Securities (India) Pvt Ltd. According to a Nomura research note, BHEL’s EBITDA plunged 68% yoy, while profit after tax (PAT) declined 49%, finding some support from higher other income. Reported order inflow of Rs14.7 billion was also negligible in the context of full year expectation of Rs300-350 billion. The details of the quarterly results are given below:
 


According to Nomura, this is just the start of a bad earnings cycle for BHEL, as execution problems are expected to continue if not escalate further (especially in the current liquidity tightening scenario), while competitive pressures and lower utilisation will have further impact on margins over the coming years.

 

Hence, Nomura has made a ‘Reduce’ recommendation for the BHEL share with a target price of Rs185.

 

On the long term forecast for BHEL, Nomura points out:

(a) Commodity price declines could be a key upside risk, as nearly 50% of the order book is on fixed-price contracts;

(b) Significant developments in new coal sourcing, whether domestically or through imports, could drive new power capex, thus benefitting BHEL. 

 

Even as demand for power is unlikely to slow, Nomura expects actual capacity to be constrained by land and fuel availability and environmental clearances. Meanwhile, new concerns on execution emerge, as order book credibility for the sector is in question now.

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Supreme Court agrees to examine new drug pricing policy

The apex court also pulled up the union government for dilly-dallying on the issue of price fixation for the last 10 years

The Supreme Court on Tuesday agreed to examine the new national pharmaceutical pricing policy framed by the Indian government for fixing prices of essential medicines in the country.

 

A Bench headed by Justice GS Singhvi asked the Centre to file its response on a petition challenging the policy and raised questions on prices of medicines fixed by the Government.

 

After going through data provided by the petitioner in the public interest litigation (PIL), the Bench said, “Margin of profit for manufacturers and dealers has become 10% to 1,300% of the cost of manufacture of the drug.”

 

The Bench also pulled up the Centre for dilly-dallying on the issue of price fixation for the last 10 years and saying that nothing has been done by the Centre despite various committees including parliamentary committee deliberating on the issue.

 

The assessment was done by the petitioner after analysing the market price, price fixed by the Government and the cost of production of drug.

 

While hearing another case, the court had earlier also slammed the Government for not controlling the price of such drugs during the last 18 years.

 

The court had made it clear to the Centre that it should not form a pharmaceutical policy, which may cause increase in the price of essential drugs.

 

The court had said drugs prescribed by the doctors were going beyond the reach of common man and “any formula for price fixation which goes against common man should be quashed“.

 

The Bench had pulled up the Government for not taking any decision on bringing more drugs under the price control after 1999 and during the pendency of case before it for the last 10 years.

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