A lot of salaried individuals do not keep track of their provident fund (PF) accounts. Often they end up with multiple accounts or in some cases forget to withdraw their funds at the end of employment.
There was no problem with this till now as the amount kept earning interest on these accounts.
Now there is a change in the situation and it will impact future earnings of those who do not keep track of their PF money.
The change: There is a change that is coming to the provident fund accounts working from April 1, 2011. It has been decided that the Employees Provident Fund Organisation (EPFO) will stop paying interest on thpse accounts which have had no contribution for three years, or 36 months.
These accounts, also called dormant accounts or inoperative accounts, will stop earning interest and will have a frozen balance from the end of March. A number of PF accounts are going to face this situation. Individuals need to check whether they have any such account facing this situation.
Changed jobs: Many a time a PF account may go inoperative when an individual changes job.
When an individual changes job, s/he should ideally transfer the account to the new employer so that new contributions keep going to the same account and the accumulated fund earns interest. However many people fail to do so and the old account remains inoperative without any new addition. At the same time, a new account gets created and contributions keep going into it. All such accounts will stop earning interest on the corpus from April if it has not seen any fund inflow over three years.
Change of position: A similar situation may arise when a person's engagement with a company gets changed in the interim.
A common occurrence is when an individual regularly employed with a company gets the contract modified as a consultant.
In such a situation, there will not be any contribution to the provident fund account. And if three years has passed since this changeover, the account will now be considered dormant.
Transfer abroad: There are also times when a person is transferred by an Indian employer abroad to be employed with its overseas arm. Even though the parent company mig-ht be the same, usually there is a cessation of the employment with the Indian company and the employee goes on the rolls of the foreign entity and is subject to the rules of the country where it is located.
In such a situation the employee often forgets to do anything about the provident fund that is still left with the original entity in India and this keeps earning interest. Since there may not be any provision for a provident fund abroad, the company cannot transfer this anywhere. A position like this will no longer work, as the interest flow will stop.
Retirement: There is also a situation where the individual has retired and has stopped work altogether.
The provident fund that was present against their name is often not withdrawn because it keeps getting interest at a high rate of return that is not available elsewhere.
Individuals who have retired three years back and have PF amounts lying with EPFO for the high rate of interest it earns should get their money out as the corpurs will soon stop earning interest.
