Employee Provident Fund (EPF) is one of the basic savings corpus maintained or rather required to be maintained by an earning individual for his/her retirement days. Of late, the EPF scheme rules have been substantially changed and will further change in the near future and you need to understand for yourself on how it will impact your life plans and savings.
Withdrawals of PF on unemployment
The earlier rules only allowed the employee to completely withdraw EPF amount accumulated after being unemployed for over two months. The new rules, changed last week allow the withdrawal of 75 percent of the total provident fund amount after one month of unemployment and the rest of the 25 percent can be extracted after the completion of 2 months of being unemployed if the user wishes to close the account.
The benefit of this change in rule depends on the user. The intention of allowing 75 percent withdrawal is to give the unemployed member a coverage in emergencies during their financial crisis while still being covered under social security and remain eligible for a pension in retirement.
Further, the new rule allows members to continue with the same EPF account (through member specific UAN) after they find a new job.
However, chances are, the flexibility will provoke the member to use it unreasonably instead of a genuine crisis and hurt their retirement fund during the accumulation phase of their life.
|Purpose||Withdrawal Limit||Minimum years of employment||Note|
|Purchase land||24 times the monthly wage+DA||5 years||The land has be registered in the name of the employee or spouse or jointly held|
|Construct house||36 times the monthly wage+DA||5 years||The house has be registered in the name of the employee or spouse or jointly held|
|House renovation||12 times the monthly wage||5 years||The house has be registered in the name of the employee or spouse or jointly held|
|Marriage||50% of employee share of EPF accumulated||7 years||For self, child or sibling's marriage|
|Education||50% of employee share of EPF accumulated||7 years||For self or child's (after 10th std) education|
|Medical emergency||6 months basic wage+DA or employee share with interest (whichever is less)||NA||For self or family member-medical certificate by doctor or employer required)|
|Just before retirement||-||After employee complete 57 years of age.||-|
Earlier, your EPF contribution was invested by the EPFO only in fixed income instruments like government securities and corporate bonds. Three years ago, it entered the stock market.
It started with a nominal share of 5 percent of the incremental corpus being placed in ETFs (exchange-traded funds) and the share was gradually increased to 15 percent. As of May, EPFO invested Rs 47,500 crore in equities, gaining a 16.07 percent return on investment.
In the future, the members will themselves be able to choose to increase or decrease their exposure to equity markets.
This will allow the younger population to increase their investment in equities for long-term purposes and those close to retirement can completely move to fixed income (if they wish to).
You should note that you will not stand to gain fixed interest income on your equity portion.
Like mutual fund units, once you have exposed your EPF fund to equity, that portion will be credited to your account in the form of units.
These units can be redeemed on withdrawals or closure of the account. In the future, debt portion or fixed income of your PF will continue gaining interest and the value of your equity holding will be marked with the market.
You will also be allowed to defer from withdrawing your equity investment for up to 3 years.
Employee Pension Scheme
You should be aware that 12 percent of your basic pay goes towards EPF, and the employer also contributes the same amount. However, from the employer's share, 8.33 percent of the 12 percent contributed goes towards EPS.
At present, an employee with a minimum salary Rs 15,000 is eligible for EPS and this may be enhanced to Rs 21,000.
Additionally, the currently guaranteed pension of Rs 1,000 to be received on retirement, will be extended to Rs 2,000 if minimum salary requirement is changed to Rs 21,000.
This will also mean that your contribution will increase to Rs 1,750 (8.33 percent of Rs 21,000) from Rs 1,250 (8.33 percent of Rs 15,000).
Higher pay and contribution
Reports also suggest that the government will put a cap on allowances given to the employees at 50 percent. This will increase the basic income of the employees that companies usually intend to keep lower to save costs on their share of PF.
This will enhance your retirement savings as your share in EPF will increase but will reduce your take-home salary.