Behind the 25% minimum balance in PF accounts: Frequent withdrawals by members that endanger retirement savings

Subscribers of the Employees’ Provident Fund Organisation (EPFO) have withdrawn vast sums from their retirement savings through categories where there is little or no documentation required, leading to concerns over a depletion of their provident fund balances that would endanger their old age security.

Internal data of the EPFO reveals that subscribers have withdrawn the most amount citing illness for which there is no restriction in the number of withdrawals. Other reasons for premature withdrawals include housing advances and special circumstances, which also do not entail any restrictions on advances. Its data also revealed that most times members who had withdrawn their PF funds due to unemployment found subsequent employment which too impacts their retirement savings.

Officials have attributed this as one of the key reasons why the EPFO chose to liberalise and simplify premature withdrawals while ensuring that a minimum 25% is kept in the subscriber’s account as retirement savings. “Repeated withdrawals routinely led to insufficient PF balance at the time of retirement,” noted a labour ministry statement on Wednesday.

Consider this. In FY25, the EPFO settled over 3.24 crore claims for premature withdrawals from provident fund for illness amounting to Rs 52,634 crore. Premature withdrawals through this dispensation under Para 68J of the EPF Scheme has risen sharply over the years from 3.12 lakh claims settled in FY18 for a total of Rs 1,154 crore. Between 2017-25, of the members availing this illness advance, around 58% of the members availed it more than once while around 25% availed as many as four times.

“This clearly indicates that the members primarily use this para for withdrawal as compared to the other paras primarily due to lack of any restrictions in the number of times this advance can be availed,” internal papers of the EPFO point out.

The data reveals that members have availed lesser advances for marriage and post matriculate education under para 68K where there is a restriction of maximum three times during the entire membership and a restriction of availing advances under para 68N for physical handicapped member only once in every three years.

In FY25, the EPFO settled 4.54 lakh claims amounting to Rs 2,447.51 crore for marriage and post matriculate education and 6.67 lakh claims worth Rs 644.79 crore for Divyangjan members.

Similarly, post 2017, there has been a steady increase in the housing advances under para 68B, which EPFO said was due to non-insistence of any documentary evidence either at the time of claiming the advance or after availing the advance. From 4.91 lakh claims worth Rs 8,437.33 crore in FY18, claims under this category shot up to 15.52 lakh amounting to Rs 23,712.46 crore in FY25.

Even in special cases of lockdowns and retrenchments, unemployment or abnormal circumstances like the Covid19 pandemic, claims for advances from members rose sharply due to the lack of any restrictions in the number of times a member can avail, one can see a steady increase both in the number as well as the quantum.

In FY25, the EPFO settled nearly 7 lakh claims amounting to Rs 1,016.73 crore for lockdowns and retrenchments and another 1.23 lakh claims of Rs 564.11 crore for unemployment.

There was also a slow and steady growth over the years for withdrawals under Para 68NN before one year of retirement resulting in the EPFO settling 42,236 claims of Rs 1,410.68 crore in FY25.

Officials note that the popularity of some types of advances, vis-à-vis others was also one of the reasons why the EPFO decided to simplify the withdrawal procedure into three categories from the previous 13 categories. For instance, the EPFO settled just 15,326 worth Rs 42 lakh under Para68M that enables members to take an advance if they are affected by electricity cuts.

Further, with EPFO set to introduce the provision of filing claims through BHIM UPI soon, it is worried that there could be a surge in the number of applications for relatively lesser amounts given the ease of withdrawals. “There is also the apprehension that such withdrawals of small amounts may not be actually related to social security needs, rather they may be used for fulfilling day-to-day expenses,” it has pointed out.

The labour ministry has also underlined that the proposed changes were recommended by the Finance & Audit Committee of EPFO, which is a tripartite committee consisting of employer and employee representatives. “These changes were approved by CBT, which has employee, employer and state representatives. So, the changes have been made after extensive consultation with all stakeholders,” it said.

However, there have been concerns, especially on social media that the EPFO has made it difficult for people to access their own savings by allowing withdrawal of only 75% of their PF balance. The labour ministry has however, re-iterated that 75% of eligible amount now withdrawable at any time without any documentation and full withdrawal is also allowed under special situations.