The decision was taken at the meeting of the Central Board of Trustees (CBT) chaired by Labour Minister Mallikarjun Kharge. CBT is the highest decision making body of the Employees' Provident Fund Organisation (EPFO).
"A decision has been taken to pay 8.5 per cent interest on PF deposits ... but we have expressed our reservations as we wanted higher interest rate," said D L Sachdev, secretary of All India Trade Union Congress (AITUC), after the CBT meeting.
Earlier, a note prepared by EPFO for consideration of the February 15 meeting of the Finance and Investment Committee (FIC) had said, "... 8.5 per cent rate of interest for the year 2012-13 is feasible."
According to the EPFO's estimates, payment of 8.6 per cent interest rate would result in a deficit of Rs 240.49 crore whereas 8.5 per cent interest rate on PF deposits for current fiscal would leave a surplus of Rs 4.13 crore. At 8.25 per cent, the fund would have had a surplus of Rs 615 crore.
In FIC meeting held on February 15, union leaders refused to discuss the issue regarding payment of interest in the current fiscal because the agenda note for the issue was not provided well in advance to them, sources said adding that the note was tabled during the meeting.
They had said the EPFO's estimates would now be directly tabled before CBT meeting held today, for final approval.
The notification on interest rate is issued by the government after concurrence with the Finance Ministry.
Usually, EPFO announces interest rate at the beginning of the year, but there has been a delay this time. Trade unions have been pressing for an early meeting of the CBT to decide on the interest rate for the current fiscal.
EPFO had paid 8.25 per cent interest to its subscribers for 2011-12, lower than the 9.5 per cent disbursed in 2010-11.
The CBT has also proposed that a permanent PF account number be issued to all members which will enable members to not seek a new number on change of jobs. An action plan has been formulated to create a central database, it said after the meeting.
The Board has also recommended to the Ministry of Finance that investment in equity be deferred till appropriate mechanism for capital protection is devised. EPFO fund - worth Rs 4.5 lakh crore - is regularly invested in various financial institutions, the return on which is then distributed to its members.
Other recommendations include raising the investment limit in public-sector bonds from the existing 40 per cent to up to 55 per cent and push the cap on investment in money market bonds from the existing 5 per cent to up to 10 per cent.
It has further proposed that the EPFO's fund be only invested in those private companies, which have a net worth of Rs 3,000 crore, have prime credit rating of AAA from at least two agencies, and pay a minimum of 15 per cent dividend over the last 5 years.
With inputs from PTI