Not overly generous: Why a PF payout rate of 8.25% is worthy of celebration—and justified

The rate, which was raised to 8.25% for 2023-24 from 8.15% the previous year, has been retained at that level since. For its more than 70 million active subscribers, this is good news. It indicates that the EPFO has not responded to a short-term rate cycle, but has been guided by commercial principles: the returns it has generated for its subscribers from its investments.

This is important. Since February 2025, the Reserve Bank of India (RBI) has been on a credit-easing cycle. Nonetheless, the EPFO’s Central Board of Trustees has wisely decided to look through these RBI rate cuts.

Monetary policy typically influences only the short end of the yield curve. And, as observed even before the war turned calculations topsy-turvy, interest rates at the long end of the curve—on debt of longer duration, i.e.—have been edging higher.

The yield on 10-year government securities on 27 February 2026 was 6.66%, up from a dip of 6.26% on 26 May 2025. A growing burden of public debt, large bond issuances by state governments and a larger fiscal deficit likely this year (and the next) after our nominal GDP was revised downward all mean rates are unlikely to come down.

In the past, EPFO payout rate decisions were often a matter of administrative convenience, and seen to be influenced by considerations of political economy. The latest call, however, is reportedly based on earnings from its investments.

This is as it should be. There is no reason to deny PF account holders the benefit of higher returns. These are rightfully theirs.

The argument often made in the past to justify lower payouts even when EPFO earnings could support a higher rate was that it must smoothen its payouts. The idea was that subscribers ought to get a reasonable return in bad years too.

This proposition is not entirely without merit. But it discriminates against today’s deposit holders in favour of tomorrow’s. It also goes against the principle that in a market-driven economy, payouts must bear some relation to the returns made by the fund.

While public sector employees get lifelong pensions, India’s vast majority of employees have no social security net (even if they hold formal jobs). In such a scenario, the EPFO plays a critical role in ensuring a modicum of retirement or job-loss security.

Agreed, we now have the National Pension System (NPS), a ‘defined contribution’ product that is open to all and helps people save for old age. But its returns vary, depending on which fund was picked and whether the market has been in a bull or bear phase.

As a ready reckoner in Mint last Monday shows, annualized NPS returns over a five-year period varied from about 16% for equity funds to 6.7% for government bond funds and 7.5% for corporate debt funds. PF holdings, in contrast, have delivered a steady return of 8%-plus for the past three years.

For those who value a steady payback over flux—a promise that may have been attracting even equity investors over the past year or so, given how volatile stock prices have become—PF remains something to be thankful about.