Very often, saving for retirement is the last goal on the financial road that a salaried employee shoots at. That’s where Employees’ Provident Fund (EPF) becomes important. In most cases, it’s forced saving that is resisted initially by most employees. But once you get used to that bite out, it works to your advantage.
With your employer matching your contribution and a tax-free guaranteed return of 8.5%, the product is attractive. If you contribute 12% of your basic plus dearness allowance every month (assuming you are 25 and earn Rs20,000 per month) to your EPF account and your employer matches the sum, by the time you retire, you would be able to save Rs1.38 crore, assuming the interest rate remains at 8.5% and you get a modest hike of 5% a year in your salary.
However, at present, EPF is at a slight disadvantage on two counts: encashment and transfer. The rules allow EPF withdrawal only at the time of retirement, medical contingency or an unemployment period of two months. But the last caveat is easily circumvented as people apply for withdrawal after two months of leaving a job, instead of asking for a transfer of the money to their new account with their new firm.
In the EPF books of account, your entry is under the name of your employer and you become eligible for encashment anytime after two months of quitting the company. When you take up a new job in the interim, you assume a new identity for the EPF office.
However, it is in your interest to transfer your EPF balance to the new account created by your new employer, instead of withdrawing the money. To do so, you need to be vigilant yourself as neither the EPF office nor your previous employer will do anything about it.
Graphic: Naveen Kumar Saini/Mint
How to transfer EPF?
Ideally, you should initiate the process of transferring your EPF balance as soon as you join your new organization and are allotted a new PF account number, which is an alphanumeric digit. The first two letters indicate the regional PF office, which is in charge of your account. The next five digits are the employer’s code, followed by the employee’s code.
At the time of joining a new organization, the company’s HR (human resources) department will give you forms for opening an EPF account. Some companies also give Form 13, which you need to fill to get the balance from your previous account transferred to the new account. Fill in the details of your previous organization, including your previous EPF number, organization and regional provident fund office. Hand it to your HR, which will fill in the details of your current organization along with your new PF number and submit it to the regional PF office with which they hold their account.
The regional PF office then gets in touch with your previous regional PF office to effect the transfer. Ideally, the process should take around 30 days.
The process is pretty much the same even if you remember to transfer your account in the middle of your new job. Download Form 13 from www.epfindia.com or ask your HR for it. Fill in the details of your previous account and return the form to the HR.
While you need to wait for two months to withdraw the money, the transfer takes place immediately.
What if not transferred?
The good news is that even if you don’t transfer your previous balance, your previous accounts are live and accessible. You can withdraw or transfer the balance to your current PF account.
However, remembering your employer and your EPF number may not be easy. So, keep all EPF slips. Says Amit Gopal, vice-president, India Life Capital Pvt. Ltd, an investment and legal consulting firm: “After a considerable waiting period, EPFO (Employees’ Provident Fund Organisation) will transfer funds to an unclaimed deposit account. Your funds will not earn interest during that period but once you make a claim, the interest due is paid even for the period your fund was sitting in the unclaimed deposit account. But, according to procedure, to withdraw your money is quite cumbersome. A better strategy is to remember to transfer your account at the time of changing jobs.”
To plug the loopholes and make EPF a more robust investment mechanism, the EPF office has taken several incremental steps. However, the big reform—that of issuing a Social Security Number (SSN)—is still caught in red tape. Once it comes into existence, it will remove a lot of gaping holes.
To begin with, just like a Permanent Retirement Account Number—you get it at the time of opening an account with the New Pension System (NPS)—that stays with you as long as you are invested in NPS, SSN will be the permanent number for your PF contributions. This would mean that the EPF office will not allow premature withdrawals since you will have to give your SSN to your employer every time you change jobs.
Till the much-awaited SSN becomes a reality, we recommend you transfer your balance every time you switch jobs.