The proposed rate cut on employees’ provident fund deposits from 8.5% to 8.1% reflects “today’s realities”, Finance Minister Nirmala Sitharaman on Monday, PTI reported.

On March 12, the Central Board of Trustees of the Employees’ Provident Fund Organisation proposed to lower the interest rate for subscribers on retirement savings scheme for 2021-’22. This is the lowest interest rate on employees’ provident fund deposits in four decades. The last time it was this low was in 1977-’78 at 8%.

Responding to Rajya Sabha MPs flagging the matter, Sitharaman on Monday said the Central Board of Trustees, which includes representatives of workers, management and the government, have not changed the rate for “quite some time”.

She added that the returns on other small savings schemes such as the Sukanya Samriddhi Yojana, the Senior Citizens’ Savings scheme and the Public Provident Fund were even lower.

“The fact remains these are rates which are prevailing today, and it [EPFO interest rate] is still higher than the rest,” the finance minister said.

Sitharaman’s finance ministry is the nodal authority for approving the recommendation of the Central Board of Trustees.

The state-run Employees’ Provident Fund Organisation is the country’s largest retirement fund with nearly 60 million active subscribers. With a corpus of Rs 16 lakh crore, it has felt the double blow of the Covid-19 pandemic.

On the one hand, employees initiated withdrawals in the wake of the financial distress caused by the pandemic, while on the other, the state-run fund saw its earnings reduce.

Provident fund accounts are mandatory for workers earning up to Rs 15,000 a month in companies with more than 20 workers. At least 12% of an employee’s basic salary is compulsorily deducted to be deposited in provident fund, while an employer also contributes an equal amount.

The decision to cut interest rate on provident fund was taken despite resistance from the trade unions, according to The Economic Times. Labour Minister Bhupender Yadav had said that international conditions as well the stability of markets were considered while taking the decision.