Amid criticism over extending the window for premature final settlement of EPF account in case of unemployment from two months to 12 months and final EPS fund withdrawal to 36 months, the government on October 15 clarified that the move is aimed at encouraging members to remain under the EPFO fold and enhance their chances of completing the minimum pensionable service period of 10 years.
In an interview with CNBC TV-18, Ramesh Krishnamurthi, Central Provident Fund Commissioner (CPFC), addressed several contentious points that arose after the latest meeting of the Central Board of Trustees (CBT) of the Employees’ Provident Fund Organisation (EPFO).
One of the key decisions that attracted criticism from members and various stakeholders was the extension of the window for the final settlement of EPF and EPS amounts.
Members were losing out on pensionable service due to easy 2-month exit window
Clarifying the rationale behind the decision, the CPFC chief said, “…for unemployment, you were forced to take final settlement… and you had to exit your PF membership. What was happening was that we were finding that people were exiting their full EPF membership, they would wipe out their PF balance completely, and they would rejoin after some time. In the process, they were losing out on a very important component that is pensionable service.”
At the CBT meeting, it was decided that members have to maintain 25% of the contributions in the EPF account as a minimum balance at all times. The CPFC chief also clarified the government’s stance on this key decision.
Now it’s ‘easy for people to access their PF money’ in times of financial need
He explained, “What was felt was that let us make it easy for people to access their PF money in times of financial need, but at the same time protect their PF for their long-term social security requirements, as India is a young country and all the youth who are coming into the workforce will retire by the year 2055-2060.”
“So, unless and until we plan for their social security protection, in times of retirement, they will have less of a corpus to be available. That is why a concept of a minimum balance of 25% is visualised, and that has been kept away as a minimum lock-in balance, and the rest of the 75% is freely available. Under special circumstances, members are allowed to withdraw up to 100% twice in a year of their eligible balance.”
Here’s what members have to say on new EPF withdrawal rule
The new rule mandating final PF amount settlement only after 12 months of job loss and EPS fund withdrawal after 36 months has been criticized by many as members won’t be able to use their PF money for at least one year into unemployment. Members argue that the easy and timely withdrawal of PF money supports them in times of unemployment, and they have a point here because people lack a regular income during those times.
The government’s intention might be to help people protect their retirement savings so they don’t immediately spend it all.