EPFO liberalises withdrawals but brings in checks to keep 25% balance in members’ accounts

The Employees’ Provident Fund Organisation’s (EPFO’s) move to liberalise and simplify withdrawals has ensured that members are not able to move out all their retirement savings at one go and would be able to access only 75% of the funds.

As per the decision of the Central Board of Trustees of the EPFO on October 14, members can withdraw 100% of their eligible balance for three broad categories of requirements including essential needs such as illness, education and marriage; housing needs and special circumstances for which no reason has to be attributed. For essential needs like education, members can make up to 10 withdrawals while for marriage up to 5 withdrawals.

“A provision has been made for earmarking 25% of the contributions in the members’ account as Minimum Balance to be maintained by the member at all times,” said an official release by the labour ministry. 

Sources explained that the minimum balance would include 25% of the total annual contributions cumulatively in the member’s account, including both employee and employer shares. This would ensure that they continue to accrue some amount of savings for their retirement.

EPFO’s data shows that 50% of the EPF members have less than Rs 20,000 at the time of final settlement, while 75% have less than Rs 50,000 at the time of final settlement and 87% have less than Rs 1 lakh. Officials attributed this to frequent withdrawals for various purposes.

Further, internal studies by the EPFO of withdrawal data have revealed that some options for withdrawals such as illness and housing have seen a sharp rise and increase in frequency over the years. It was also seen that in many cases, members are availing even small amounts as advances and as frequently as possible resulting in withdrawing even the latest monthly contributions made into their account.

According to sources, the move has been made to keep the EPF in line with facilities available in other retirement saving schemes such as the National Pension Scheme and the Public Provident Fund.

With this in mind, the EPFO has also planned a minimum transaction limit of Rs 1,000. This will help discourage frivolous withdrawals that do not serve any tangible purpose, sources noted.

Similarly, the period for availing premature final settlement of EPF has also been extended to 12 months from the existing two months to 12 months and final pension withdrawal to 36 months from two months. 

Sources explained that while this is also expected to help members as many of them simultaneously avail Withdrawal Benefits along with premature final settlements after being unemployed for two or more months. This results in ineligibility for family pension in case of death and also lowers the amount of pension at the time of retirement as the member is unable to get the benefit of all services rendered during his various spells of employment.

However, the decision has led to some concerns and how it would play out on the ground. Members of the CBT said that this agenda was provided to them at the last minute and they were unable to review it in full.