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Are you letting your provident fund do its job?

Are you letting your provident fund do its job?
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First Published: Tue, Aug 19 2008. 11 06 PM IST

(Illustration: Jayachandran / Mint)
(Illustration: Jayachandran / Mint)
Updated: Tue, Aug 19 2008. 11 06 PM IST
You are about to take up an exciting new job. Even as you say warm goodbyes to your colleagues, attend farewell parties and remove your personal belongings from office drawers, are you leaving behind a lifelong friend? The Employees’ Provident Fund (EPF) account often gets left behind in the old workplace and gets ignored in the euphoria of new jobs.
Often our attention is drawn to it only when the gentleman from the accounts department in the new workplace calls up for details to route the fresh provident fund deductions. Unlike tax deductions that get influenced by, among other things, tax saving investments or expenses, and, therefore, remain within your sight, contribution to the provident fund (PF) account gets deducted before you get your pay cheque. As a result, it often gets ignored even as it silently builds up a corpus for your retirement, thanks to contributions by you and your employer that can be up to 12% of your salary (consisting of basic, dearness allowance and retaining allowance, if any).
(Illustration: Jayachandran / Mint)
In many cases, when people change jobs, they end up ignoring the money lying in existing PF accounts and open fresh ones without transferring money from the older one. Eventually, after some more job switches, the older accounts fall off the mental radar. But, your PF account is portable and can be continued with through your career, despite any number of job changes. You can turn it into a lifelong friend, much like the pug in a popular mobile phone service provider’s advertisement. Let the PF account be an uninterrupted effort to build a large corpus.
However, if the need is great, you can partially or fully withdraw money. This can happen in instances when you expect a spell of prolonged unemployment, a transition to self-employment, where you would want to continue with your retirement accumulation efforts, or have no other option but to tap a part of this money to meet requirements such as those for kids’ higher education, health expenses, marriage of self or children or building a house. Here is a guide map on how to transfer your provident fund account or withdraw money from it.
Transferring the account
When you move to a new job, your EPF account does not get transferred automatically. You have to ask your previous PF office, which maintained your account, to transfer it. You need to fill up Form 13 (available at www.epfindia.com) and give it to your present employer, along with your EPF account number with the previous employer.
You can get your account number from the HR or administration of your previous organization. The number is a function of your employee code, the PF regional office with which the account is maintained and your employer’s PF code.
After your present organization gets these details, it adds your current account number and submits the form to the regional office with which your previous employer maintains the account.
Your EPF not only offers you a lump sum at retirement, but also pension for life. Of the 12% of your salary that your employer contributes to the account, 8.33% gets diverted to the Employees Pension Scheme, which offers a defined benefit at the age of 58. This 8.33% contribution, however, is made till your basic salary is Rs6,500 per month. Therefore, when you diligently transfer your PF account after every job switch, you secure a source of regular retirement income.
Encashment
To encash your PF money, you need to fill up Form 19 and give it to your previous employer. The PF office lets you withdraw the entire amount on medical grounds, voluntary retirement and unemployment for more than two months. The mandatory break of two months for withdrawal is often circumvented by submission of the claims once two months have passed after a change of organization. Women employees who leave their jobs after marriage do not need to wait two months.
In addition to Form 19, you also need to fill up Form 10C, which lets you withdraw the pension money your employer contributes. However, if you do not wish to withdraw your pension money, you have the option of obtaining a scheme certificate through the same form which continues your pension account even as you encash your PF money. So, you can submit the scheme certificate in the next organization that you join and carry forward your pension account.
Since the system is fraught with loopholes and making a full withdrawal is just a matter of submitting an application two months after quitting a job, there are plenty of cases of people taking out their money. However, with a plan for Social Security Numbers in the pipeline, it may be that there will be just one account number that will move across jobs. Then withdrawals may not be that simple.
Claim timeline: A claim is mandated to be paid within 30 days of being registered with the PF office. If this 30-day deadline is not met, your PF office is liable to pay you penal interest on the claim amount at the rate of 12% per annum. This will be paid from the salary of the regional PF commissioner.
Partial withdrawal
It is a good idea not to encash your account, but the scheme does provide for partial withdrawals in case of emergencies. However, there are certain restrictions with every kind of withdrawal.
To take money out for housing, for instance, you need to have been a member of the EPFO for at least five years and the maximum amount you can withdraw is the basic plus DA for 36 months, or your and your employer’s share for 36 months, or the cost of construction, whichever is the lowest.
But if you can, stay invested, and lug it everywhere you go—it can give you some respite in your second innings.
(Write to us at outlookmoney@livemint.com)
(The views expressed on this page are not the newspaper’s opinion and are provided for information purposes only by Outlook Money. Readers are requested to do their own research. Neither Mint nor Outlook Money will be responsible for any actions and outcomes based on information provided here.)
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First Published: Tue, Aug 19 2008. 11 06 PM IST