Should salaried employees have more say over how their own money is used?

Most working professionals remember their first salary clearly. The money reaches the account and the plans begin immediately — send some home, start a SIP, build an emergency fund and maybe book a holiday trip.

Now imagine a different scenario. Your CTC looks healthy on paper, but the amount that actually reaches your account each month is less than you expected. A significant chunk has already been set aside for your future before it ever reaches your hands.

In principle, this sounds reasonable. Saving for retirement is important. In a country where formal pension coverage remains limited, instruments like the Employees’ Provident Fund (EPF) serve as a genuine financial lifeline for millions.

But the question worth asking is this: in securing tomorrow, are we quietly squeezing today?

What the New Labor Codes change and why it matters

The government has consolidated 29 labour laws into four new Labor Codes, with the goal of strengthening social security and simplifying salary structures. The most consequential change for salaried employees is: basic salary now constitutes at least 50% of an employee’s gross salary.

Previously, many companies kept basic pay deliberately low and allowances high. This reduced EPF contributions for both employee and employer, keeping take-home pay relatively higher.

Under the new framework, as basic pay rises, EPF contributions rise too. So does gratuity. The total CTC may not change at all but the amount credited to your account each month likely will.

This is where public policy and personal finance pull in opposite directions. The government’s logic is higher mandatory savings will result in better retirement security later. But for a salaried individual managing rent, EMIs, school fees and medical costs today, the trade-off is not so simple.

Meet Rohan and the question his story raises

Rohan, an IT professional, is 25. He has just started his first job. Retirement is the last thing on his mind and reasonably so. Over the next decade, he needs to build an emergency fund, buy health insurance, save for a home down payment and perhaps take a career risk or two.

Every month, a meaningful portion of his salary, both his share and his employer’s, goes into his PF. By the time he retires at 60, he will have a substantial, stable corpus. That is not nothing. The PF’s current interest rate of around 8.25% is decent, and the discipline it enforces is real.

But here is the question: what if Rs 8,000–Rs 10,000 more had stayed in Rohan’s hands each month?

Had he directed it into equity mutual fund SIPs over 30 years, the potential returns, though riskier, could have been meaningfully higher. More importantly, he would have had a choice.

The debate is not whether PF is bad or whether mutual funds are better. It is whether Rohan should be the one making that call or whether the system should make it for him.

The real cost: Opportunity, not just returns

There is a term in finance — opportunity cost. It rarely comes up in conversations about PF. It simply means that money parked in one place cannot work somewhere else.

If Rs 10,000–Rs 15,000 less reaches Rohan’s account each month, the impact goes beyond his investment portfolio. He may not be able to start a SIP. His emergency fund may take years to build. He may keep postponing health insurance. His home down payment may keep slipping further away.

Financial advisors broadly agree that the two non-negotiables in personal finance are an emergency fund and adequate insurance. Both require liquid cash. If monthly cash flow is already tight, mandatory long-term savings can create short-term vulnerability.

On paper, you are saving more. In practice, your options are narrowing.

When saving with one hand means borrowing with the other

Here is the part that rarely gets discussed.

Suppose a cash crunch hits — a medical bill, a home repair, an unexpected expense. Rohan’s money is locked in his PF. So he turns to a credit card or a personal loan. Interest rates on these typically run between 18% and 42% per year.

His PF is earning 8.25%. His debt is costing him three to five times that. He is saving with one hand and paying down expensive debt with the other. His net financial position may not be improving at all.

This is not an edge case. For middle-class households already managing EMIs, rising school fees, and healthcare costs, reduced take-home pay can quietly push people toward high-cost borrowing. The savings are visible on a statement. The debt accumulates in the background.

This is why liquidity — how much breathing room you have month to month — matters just as much as how much you are saving in total.

But forced saving has its place too

The other side of this argument deserves equal honesty.

Most people do not save enough for retirement. In the early years of a career, the priorities are elsewhere — a new phone, a holiday, lifestyle upgrades, family commitments. Retirement feels abstract. The result, for many, is arriving at 55 with very little set aside.

A mandatory mechanism like the PF removes the decision entirely. The money goes before you can spend it. For a large section of India’s workforce — people without the time, knowledge, or discipline to invest systematically — this is not a flaw. It is the feature.

Not everyone is a confident investor. Not everyone understands equity risk or knows how to build a portfolio. In that context, the PF offers something valuable: a guaranteed floor. A minimum. A safety net that does not require financial literacy to access.

The system works well for many people. The question is whether it works well for everyone.

The real question: Who decides?

This debate is not PF versus mutual funds. It is not secure savings versus risky investments. At its core, it is about a simpler question: should salaried employees have more say over how their own money is used?

A 25-year-old and a 50-year-old do not have the same financial needs. A person with dependents and a home loan is not in the same position as someone who is single and mobile. Financial planning is personal precisely because lives are personal.

The PF’s greatest strength is the discipline it enforces. Its greatest limitation is that it applies the same logic to everyone, regardless of where they are in life.

For many employees, higher mandatory savings will turn out to be the right outcome. For others, that same money — kept liquid — could have built an emergency cushion, reduced costly debt, or funded a better insurance plan. Both truths are real. Both matter.

The goal of any good retirement policy should be to secure people’s futures without making their present financially fragile. Right now, that balance is worth examining more carefully.

Because the most uncomfortable question in all of this is a simple one: are we making employees more financially secure — or are we just moving their money somewhere they cannot reach it?

Disclaimer: This column is intended for informational purposes only and should not be construed as financial, investment, tax or legal advice. The views expressed are based on general personal finance principles and broader policy considerations around retirement savings and cash-flow management. Individual financial situations, risk appetite, income needs and long-term goals vary significantly. Readers should evaluate their own circumstances and consult qualified financial or legal professionals before making decisions related to investments, retirement planning, or employment benefits.

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