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

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...

Compared to Bank FDs, Debt Mutual Funds are more Tax-Efficient

It is a security vis-a-vis returns battle between bank fixed deposits and debt funds In the past few months, banks have been consistently increasing their rates of interest on different fixed deposits. And after the Reserve Bank of India's Annual Monetary Policy, even the saving deposit rates are up at 4 per cent. For a six-month fixed deposit, you can easily get a rate of anywhere between 6 and 7 per cent annually. However, experts feel if one is looking to invest for less than a year, debt funds could make a better choice. The reason: Liquid funds and ultra short-term funds are giving annualised returns of 8 per cent. Financial advisors suggest retail investors opt for mutual fund schemes as they are more flexible and give higher post-tax returns. Opt for fixed deposits only if you are comfortable being locked-in for the tenure as a premature exit can attract a penalty. If your main aim is to ensure liquidity, debt funds are preferable. Though a fixed deposit gives you a...

Right Size your SIPs in terms of tenure and amount

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)    Systematic investment plans ( SIPs ) are here to stay. Going by the growing number of SIPs, it does look like investors have taken to them in a big way. Today as much as . 1,000 crore flow into SIPs every month. A SIP, as the name denotes, is a method to invest a fixed amount in a mutual fund at regular intervals --generally monthly or quarterly. It is easy to do and the minimum amount with most mutual funds is a mere . 1,000 per month. You can write post-dated cheques for your investment, or give an auto-debit facility from your bank account. In fact, most investors today prefer setting up an auto debit for their SIPs, since writing cheques is cumbersome. Also, you can choose any tenure that you want for your SIP — six months, one year, five years, 10 years or even opt for a perpetual SIP which will continue forever till you stop it....

Good Loan

Why Is It A Good Loan?: Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.      For instance, the interest rate on a personal loan of 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.    Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loa...
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