Skip to main content

Early PF withdrawal won't be easy

Withdrawing the provident fund balance each time you switch jobs could soon become a thing of the past if the country's apex retirement fund has its way.

The Employees' Provident Fund Organisation (EPFO) has urged the government to bar workers from pulling out their PF balances on changing jobs.

"Every six months to a year you change your job and withdraw your PF. That makes us more like a bank," said Central PF Commissioner Samirendra Chatterjee.

"The PF account should serve its purpose of social security — having a Rs 15,000 balance at retirement is ridiculous," Chatterjee said. "It's in the larger interest of workers to bar withdrawals," he said.

EPFO's call for change has been spurred by an alarming internal study of this year's PF settlements at PF office in Karnal, Haryana . As many as 89% of the cases settled at the office, which covers a blend of old and new economy industries, were those of workers withdrawing PF balance after resigning from a job. Just 0.8% workers opted to transfer their PF account to their new job.

The settlement amount for 82% of the workers pulling out their PF was less than Rs 30,000. Nearly 65% workers withdraw their retirement savings before the age of 35. Just 3% EPF members had continuous service of 10 years – a prerequisite to be eligible for pension benefits from EPFO.

The study inferred that 50% of claims are from people withdrawing their PF at the age of 31.33, after working for 2.7 years. They typically take home Rs 10,000, it said. "Sure, people need money, but they shouldn't consume all their savings at every opportunity," said Chatterjee.

Existing PF rules specify that an employee can withdraw his/her entire EPF contributions two months after leaving a job. However, there is a condition that the employee shouldn't start working elsewhere in that period. If another job is taken up within two months, the EPF balance must be transferred to the worker's new PF account at his/her new workplace.

But these rules are impossible to implement as EPFO has no systems in place to prevent workers from getting new PF accounts with every job switch. Its accounting systems are archaic and operations are still being computerised incrementally.

The PF commissioner has asked all field offices to do an analysis of their settlements over the past year, so that the government can be convinced about the need for change. Other provident funds like the Coal Miners' Provident Fund and the Seamens' Provident Fund restrict withdrawals to special circumstances, while the New Pension Scheme doesn't allow any withdrawals before the age of 58.

The EPFO was set up in 1952 to ensure that India's workforce is assured of some income security in old age.

The rising claims from young workers is detracting focus from more crucial regulatory functions of the EPFO like monitoring defaults from employers, conducting audits and scrutinizing returns. Quick withdrawals also hurt EPFO's investment earnings as 70% of PF contributions are withdrawn within 3 years.

For over a decade, the department has tried unsuccessfully to assign a unique account number for individuals to retain through their working lives. In the absence of such a system, even if one changes jobs within a single PF office's jurisdiction, the department can't block withdrawal claims on account of resignation.

A few employees do opt for transfers so that their retirement savings accumulate instead of being frittered away. But the transfer process is too tedious, requiring one to co-ordinate between two employers and two PF offices. The result- most workers withdraw such piecemeal retirement savings each time they join a new firm.

"Transfers used to take long as they are additional work and low-priority even for the employers. You have already left them so they have no interest in forwarding applications to us," Chatterjee said.

An attempt is being made to streamline transfer of PF balances from past jobs into workers' current accounts. Last week, testing began in Delhi and Karnal offices on new software that would transfer PF balances electronically, within a month. If this goes smoothly, it would be replicated across the country from the first week of January.

Popular posts from this blog

Rs 14,000 Crore worth of tax free bonds coming soon from NHAI , PFC

  NHAI, PFC file prospectuses, coupon rate not yet decided MORE debt investment options have opened up for investors with AAA rated tax-free bonds worth over Rs 14,000 crore lined up. The National Highway Authority of India ( NHAI ) and Power Finance Corporation ( PFC ) are offering Rs 10,000 crore and Rs 4,033.13 crore worth of tax-free bonds, respectively, as per prospectuses filed with the Securities and Exchange Board of India (Sebi). Of a Rs 5,000 crore issue by PFC, Rs 966.87 crore has already been raised through private placement on September 28 and November 1. Tax-free bonds give investors tax-free return on any amount invested. In another kind of bonds, the long-term infrastructure bonds, investments up to Rs 20,000 are tax exempt, that is this cap amount can be deducted from the taxable income. Accordingly, the NHAI prospectus has clarified that only the amount of interest from -and not the actual investment on -its new bonds will be tax-free. "NHAI's publ...

Change in Fund Manager for some of HSBC Mutual Fund Schemes

Buy Gold Mutual Funds Invest Mutual Funds Online Download Mutual Fund Application Forms Call 0 94 8300 8300 (India) However, this facility is only available to Unit holders who have been assigned a folio number by the AMC.   HSBC Mutual Fund has announced that the below mentioned schemes shall be managed by the new fund managers as stated in the table. The effective date will be July 02, 2012.   Amaresh Mishra 's will be Vice President and Assistant Fund Manager. Having done a Post graduate diploma in Business Management and Bachelor of Chemical Engineering, he has over seven years of experience in Equities and Sales.   Mr. Piyush Harlalka's designation shall be Vice President- Fixed Income. Qualified as a C.A., C.S. and holding M.B.A.( Finance degree), he has over six years of experience in Fund management and ...

How EEE and EET Tax affect Retirement Investments

  An important factor while choosing a financial product is its taxation , and for retirement savings, this is even more important as the sums involved are usually life-long savings. Here's a look at the current tax treatment of three major long-term retirement planning products, which are - Employees' Provident Fund (EPF), Public Provident Fund (PPF) and National Pension System (NPS). EPF The tax treatment is EEE, which means your money is exempt from taxes at the time of investment, accumulation and withdrawal. At the time of investment, the tax deduction is under the limit of section 80C of the Income-tax Act , which is currently Rs 1.5 lakh. Partial withdrawals are also tax-free if made after 5 years of continuous service. If withdrawals are made before 5 years of service, 10% tax will be deducted at source. Exceptions have also been provided for transfer of amount and conditions wherein the subscriber is unemployed for more than 2 months or the loss of job was beyond th...

Personal Finance: You can insure your wedding

But luck may not always be on your side. With the frequency of such attacks, as also other risks and unforeseen accidents growing, a wedding insurance is something you may want to look at if a marriage is being planned in the family. Event insurance plans like this is still in its nascent stages due to low awareness. And given the sacred nature of the ritual, nobody wants to discuss or think negative. But as wedding spends and risks grow, it makes sense to cover the potential monetary loss. The policy in those countries even covers the loss of the wedding ring, the wedding gown not reaching on time and even the expenses/loss due to late or non-appearance of the photographer which may mean staging the event once again for the photograph. In India, most insurance companies — including ICICI Lombard General Insurance, Oriental Insurance, Bajaj Allianz and National Insurance — offer wedding insurance. The policy is tailor made to individual requirements and needs. The sum insur...

DSP BlackRock MidCap Fund

Best SIP Funds Online   HOW HAS DSP BlackRock Small & Mid Cap Fund PERFORMED? With a 10-year return of 14.61%, the fund has outperformed both the category average (12.34%) and the benchmark (10%) by a good margin. Should you invest in DSP BlackRock Small & Mid Cap Fund? This fund invests predominantly in mid-cap stocks but takes a sizeable exposure in small-caps as well. The focus is on nascent companies with high growth potential. The fund manager places emphasis on quality and avoids inferior businesses even if these look tempting from a valuation perspective. Over the past year, the fund portfolio has grown, having added to some of the underperforming sectors like chemicals and healthcare. Its portfolio churn has come down significantly. The heavily diversified portfolio is run completely agnostic of its benchmark index— most bets are from outside the index—which can at times lead to bouts of underperformance as seen in the recent years....
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now