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Earlier this month, the Employees’ Provident Fund Organisation (EPFO) sent a memo to its officials advising extreme caution in dealing with claims made on inoperative accounts. The circular can be read here: http://goo.gl/jAIj1A . The memo suggests inoperative accounts, which do not see fresh contributions, and accounts maintained with defunct employers are at a greater risk of fraud. This is quite plausible. An inoperative EPF account is something you maintain with your previous employer. It’s inoperative because neither you nor the ex-boss makes any fresh contribution into that account. And since you don’t even transfer that money or withdraw, it just sits there at first getting interest for three years and then becomes idle altogether.

You could just as well call it a neglected account and that should explain why it falls under the radar making it an easy target for fraud. According to the memo, fraudsters make fictitious withdrawal claims and open bank accounts with forged identity to siphon off money. And if such accounts are with defunct employers, the risk is even greater. In the absence of an employer to vet your credentials EPF authorities rely on your bank branch manager to attest your identity. This removes an important layer of filter in processing your claims. But are these fraudsters alone? It’s very hard to believe that such frauds would take place without the collusion of EPF officials or employers. How else will anyone get wind of inoperative accounts and subsequently the details? Some of my sources in the EPFO and employee benefit firms tell me that usually it’s the internal staff who is complicit in the crime.

Your inoperative account is at risk because EPF authorities don’t know you directly. Know-your-customer (KYC) processes are non-existent. In fact when you join a company, you just fill up the EPF form with basic details of yourself and you are given an EPF account number that’s linked to your employer. And every time you change jobs your EPF account changes and so does the number making it impossible for the authorities to track you individually. Compare this with the neat architecture of the National Pension System (NPS). NPS is a voluntary retirement scheme that doesn’t need the involvement of your employer: you could either invest by yourself or through your employer. Under the NPS, every investor has a unique number called the Permanent Retirement Account Number (PRAN). Proper KYC ensures that one individual does not end up with two pension accounts. Even if you open this account through your employer, you will still need to complete the KYC processes and obtain PRAN so that when you leave your employer your pension account automatically travels with you. PFRDA knows you only through that unique number. And then there is a lock in till 60 years of age leaving very little room for fraud.

EPFO has also been contemplating a unique number to make EPF accounts portable and ensure some KYC in place, but so far it hasn’t been able to come up with a solution. In the current system, EPFO does not have proper checks and balances to completely eradicate fraud and the fact that your EPF account is inaccessible, unlike your bank account or investment product on which you can keep tabs at all times, it makes the system vulnerable. And then the biggest drawback of the system is that it’s largely decentralized. Again compare this with the NPS that centralizes processes through a central record-keeping agency. EPF on the other hand operates through several regional provident fund offices. Imagine the delays at the time when files moved from one office to another manually. In fact I don’t even have to go so far in the past to make my point. A colleague who initiated a transfer of his EPF money from a previous account in 2010 finally saw the transfer take place in 2013, the outer limit to settle transfer claim is 30 days. His cheque got delivered to the wrong address and then got lost before finally finding its way to his current account. He alone does not validate my point. Every time Mint Money does a story on EPF, we like EPF for its tax-free returns and we think it’s a useful retirement product, the authors get record number of reader responses mostly carping about administrative delays in the system. But EPFO, although very late, is finally taking the help of technology to help you track your EPF money actively. For instance, you can now have an online EPF passbook for an account statement; this for security reasons is not available for inoperative accounts. But a big leap forward is the Online Transfer Claim Portal (OTCP). Through OTCP, the authorities have centralized the system of EPF transfer from one account to another. The system gets involved the minute a transfer is initiated by the employee and then coordinates it with all the parties involved online. The process is simple and it can be read here: http://goo.gl/ZZNPUU . This facility is targeted especially for inoperative account holders who can now transfer their EPF money from previous account to their current EPF account online.

In fact before writing the story I tried transferring my money online, yes I am guilty of neglecting my EPF money, but only on one occasion, and came out very impressed. The process currently is not completely online because your employer may need you to sign the transfer form and submit a physical copy for their record otherwise he may refuse to attest your forms, which could again cause delay and defeat the purpose altogether, EPFO plans to address this problem by mandating an outer limit for verification. My case, however, is pending approval by my ex-employer. Next time you jump to blame the EPF keep in mind that it could just be your employer causing unnecessary delays.

EPFO although has settled a claim within four days after it got due verification from the employer in a day. This according to the central provident fund commissioner, K.K. Jalan should restore faith and encourage people to transfer money rather than withdraw from the EPF. Make use of OTCP to take your EPF money with you or withdraw it, but don’t leave it lying around. Not only will you not get any interest on it you will also risk it. Do write to us about your experience with OTCP and any specific issues you may have faced.

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