With six out of 10 EPF accounts inactive and a whopping R23,000 crore lying unclaimed in these 6 crore dormant accounts, the EPF is rolling out the new transfer system before Diwali to help a majority of its subscribers to either withdraw or move their savings to active accounts, central provident fund commissioner KK Jalan told FE on Friday.
This is how it works: the application filed by a subscriber on the EPFO portal for withdrawal (in case of job loss) or transfer (in case of job switch) of EPF funds will automatically go to the employer and the EPFO.
This would ensure that neither the employer nor the EPFO can claim that they have not received the application, a guarantee against undue delays.
The transaction will be completed within a few days. The EPFO hopes that with this, half of the fund transfers will go paperless by next year.
The proposed move could bring cheer to millions of subscribers, especially migrant workers and job-hoppers, whose applications are caught up in EPFO's multi-layered bureaucratic cobweb.
The new system would incentivise those who have been keeping away from claiming their previous EPF accounts fearing bureaucratic red-tape.
The dormant accounts are those that haven't seen any accruals for the last three years.
Since April 2011, these accounts have not been generating any interest income for the subscribers while being a drag on the books of the EPFO.
Unlike in insurance sector where the funds in inoperative accounts can be used for investor education, the EPF Act bars the provident fund to use the funds lying in "inoperative" accounts for any productive purposes.
Jalan said EPFO has a little over 10 crore subscribers right now but contributions are made regularly in about 4 crore accounts only.
Though the subscriber base of EPFO has more than doubled from 4.5 crore as on March 2008 to over 10 crore now, EPFO officials said many employees are having more than one accounts.
As per EPFO rules, most of these accounts have turned inactive in absence of any contribution for over 3 years.
"A pilot project on online fund transfer has already started in the works and it will be formally rolled out across the country in a month or so," Jalan said. EPFO is in the process of getting the digital signatures from employers, which will be key to roll out the online fund transfer, Jalan added.
The amount of unclaimed deposits under inoperative accounts has climbed to 22,636.57 crore as on March 2012 from just 877 crore in March 2006.
Most of these accounts have deposits of less than R5,000, implying majority of them belong to migrant workers. With economic slowdown and job losses in the past two years, it is likely the number of inoperative accounts and funds lying in them have also gone up.
While some of the idle funds will definitely flow into the active accounts once the online fund withdrawal is allowed, much of it may flow into other financial investments and spur consumer spending.
The extent of delay is not just confined to just one area. The software for online statement of accounts of subscribers, which was launched by labour minister Sis Ram Ola with much fanfare on Friday, comes after a delay of seven years since its inception in 2006 by the then PF commissioner A Vishwanathan.
Even the unique identification number, which is now being talked about at the EPFO, was proposed by Vishwanathan.
"The proposed UIN is yet to be finalised as the earlier proposal to link it with Aadhaar has not been successful," said an official.
Perhaps the most controversial, a proposal to allow EPFO to invest 5% of its corpus in equities to derive a higher return for its subscribers, have been in the agenda since 2005-06 but neither the trade union members in the Central Board of Trustees nor labour ministry has shown any inclination to allow that so far.
Last year, the CBT took hours to agree on allowing PFs to invest in bonds of "AAA" rated private companies.