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DYK: You can’t withdraw employers’ contributions to EPF before retirement

Being a retirement product, EPF allows withdrawals only for certain events

In a gazette notification in February, the government made complete withdrawals from the Employees’ Provident Fund (EPF) difficult. As per the new notification that came into effect from 10 February this year, an employee will not be able to withdraw the contributions of her employer till 58 years of age.

HOW DOES THIS WORK

Every month, a salaried individual contributes 12% of her salary to the EPF account and the employer matches the contribution. A part of the employer’s contribution goes to the Employees’ Pension Scheme. The EPF contributions compound at a rate declared by the Employees’ Provident Fund Organisation (EPFO) every year (current rate is 8.8% per annum). The money accumulates and is available to you at the age of 58 years.

Being a retirement product, EPF allows withdrawals only for certain events. For instance, partial withdrawal is allowed for medical emergencies or to fund children’s marriage or education. Entire corpus, for instance, could be withdrawn if a person was unemployed for at least two months. But due to loopholes, employees were generally able to withdraw their entire EPF corpus at the time of changing jobs. Before EPF became portable through the Universal Account Number (UAN), EPF authorities could not track members’ employment—an employee would get a different employer-linked EPF account number every time she moved jobs. So, the employee could apply for PF withdrawal after two months of leaving the previous employer.

NEW RULES ON WITHDRAWALS

While UAN made illegitimate withdrawals difficult, the new rules have made complete withdrawals impossible. According to EPFO officials, the new rules have been put in place to lend stability to UAN and to discourage employees to close their UAN accounts. EPFO further plans a host of online services, including allowing employees to make claims completely online, which will depend on the stability of UAN.

The new rules state that if you have been unemployed for at least two months—two months not needed for women who quit to get married or on account of pregnancy or childbirth—you can make a withdrawal, but only your total contribution, including interest. The employer’s contribution and interest accumulated remains locked till you turn 58.

This, however, may not be without its problems. If you are quitting the formal workforce and not joining another organisation with a PF account, you will not be able withdraw your employer’s contributions. Subsequently since there are no contributions made, the account will become dormant after three years and no interest will be paid on such accounts. However, EPFO is reviewing this clause to make sure employees don’t suffer and according to consultants such accounts will not be considered inoperative or dormant. A clarity on this is awaited.

But in specific cases, like if you are migrating to another country or taking employment abroad, or there is mass or individual retrenchment, the old rules apply and you can withdraw the full amount.

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