Pension After 36 Months: Why the New EPFO Rules Have Triggered Anger

New Delhi: The Press Information Bureau (PIB) has stepped in to try and defend the new Employees' Provident Fund Organisation (EPFO) rules after backlash from several quarters. The PIB claimed that false statements were being made about the rules online, but its clarification appeared to reiterate some of the issues that had been raised.

What is EPF?

The Employees’ Provident Fund is a mandatory saving scheme run by the Union Ministry of Labour and Employment, and governed by the EPFO. Each month, both employees and employers pay an earmarked amount (12% of the employee’s basic income, each) into a PF account – a security net for salaried employees for their retirement, or if they lose their jobs, or suddenly need money for healthcare, a wedding or other reasons.

Why does it matter?

The EPF is something that affects the middle-class in India directly. This is a vocal segment, politically and on social media, and can set the mood or narrative. This is a societal section the present government is very careful about. With high inflation having eroded savings and high unemployment rates over the past few years, anything that feels like it is hurting the middle class can be a sore point at a time when an important election in Bihar is just weeks away.

If new EPFO rules are seen as cutting back on disposable incomes, it can take the sheen off the ‘GST’ bachat-utsav the BJP has been trying to push as a ‘gift’ from Prime Minister Narendra Modi.

What are the new rules?

And why are opposition leaders and others concerned about them?

On October 13, the EPFO’s Central Board of Trustees (CBT) chaired by Union labour and employment minister Mansukh Mandaviya declared that “simplify the partial withdrawal provisions of EPF Scheme by merging 13 complex provisions into a single, streamlined rule categorized into three types namely, Essential Needs (illness, education, marriage), Housing Needs and Special Circumstances”. It has also increased the number of times partial withdrawals can be made, and the amount of these withdrawals. Education-related withdrawals can now be made up to 10 times, and marriage up to five times, up from a total of three withdrawals for both education and marriage combined.

While that may sound okay to most, and the relaxation for rules around partial withdrawal could also be seen as harmless, it was the fine print that got people worried.

Extended timelines for post-retirement withdrawals

Under the new rules, the timeline for premature final settlement of EPF has gone up from two months to 12 months, and the timeline for final pension withdrawal has gone up from two months to 36 months. This means that people who retire will need to wait far longer before they can access their own savings.

For those who may be living paycheck to paycheck, opposition leaders have pointed out, the new timelines would mean the PF system will fail to provide a safety net after retirement.

25% minimum balance

Another provision that has upset people is the requirement of a 25% minimum balance in an individual’s PF account “at all times”, until retirement. According to the ministry’s release, “This will enable the member to enjoy high rate of interest offered by EPFO (presently 8.25% pa) along with compounding benefits to accumulate a high value retirement corpus.”

While saying that it was misleading to claim that this 25% is “locked in”, the PIB too reiterated that in fact it can be withdrawn only in very specific circumstances. “Full withdrawal of the entire PF balance (including the minimum balance of 25%) is allowed under a few conditions, like retirement after attaining 55 years of service, permanent disability, retrenchment, voluntary retirement, or leaving India permanently, etc.,” the PIB’s clarification said. “Simplified provisions allow full withdrawal of the entire PF balance (including the minimum balance of 25%) after 12 months of continuous unemployment.”

This means that if you lose your job and want to withdraw your PF money to tide you over, you will be able to withdraw 75% at first. The other 25% will be made available only if you remain unemployed for 12 months continuously.

Questions have been raised around this minimum balance, since money in an EPFO account belongs solely to the individual and so, some have argued, decision-making around how much to take out in case of hardship or job loss should also be with an individual.

As opposition parties criticise the move and individuals on social media too question its impact on middle-class salaried employees, it remains to be seen whether the government will backtrack on these decisions.

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