The recent changes to the Employees’ Provident Fund Organisation (EPFO) rules, which now mandate a 25% minimum balance and a waiting period of one year before withdrawal, have created confusion among the salaried and also drawn criticisms from the opposition parties.
However, the government released a fact sheet to simplify the regulations for the masses and clarify the confusion around the same. One of the major points of doubt was that 25% of the employees’ accumulated sum had been locked and withdrawal has been restricted for a year, which was previously restricted for two months.
“Earlier, there were 13 different categories with numerous conditions under which money used to get locked. These have now been completely simplified into one uniform provision, making it much easier to withdraw money without any documentation,” said labour ministry in a statement. Similarly, the rationale behind keeping the buffer of 25% is that to ensure “high rate of interest offered by EPFO (presently 8.25% pa), along with compounding benefits to accumulate a high value retirement corpus.”
Pankaj Mathpal, MD and CEO of Optima Money, explained that this move has been deliberately taken to ensure that the salaried individuals are not tempted to withdraw the money only a couple of months of unemployment, as that will hinder their financial safety net. “There were instances before when an individual withdrew the money within a couple of months, being unemployed, and he/she joined a new job in the third or fourth month,” added Mathpal. However, apart from unemployment, for any other emergencies like medical urgencies or marriage or education for the salaried people, the withdrawal regulations have been simplified, and also the waiting period has been minimised or removed.
The Ministry clarified in its release that in almost all cases, the withdrawal limits have only been increased — whether in terms of amount or frequency. Earlier, withdrawal for marriage or house purchase was allowed only after 5–7 years; now it can be done after just one year.
Withdrawal limits for education or illness have also been made more flexible. Additionally, in any special circumstances or emergencies, the full eligible amount can be withdrawn up to twice a year without any questions asked. Another area of criticism was the changes in the pension benefits. Under the new rule, the timeline for final pension withdrawal has gone up from two months to 36 months, and this has been particularly concerning in the case of the death of the individual.
Previously, for the death of an employee during service tenure, the family was eligible for a pension if the member had completed at least 10 years of contributory service. If the member dies before completing 10 years, the family pension is not applicable, but the nominee can claim the accumulated EPF amount. Now, even if the contribution period is for a year, then in case of the sudden demise of the individual, the family will receive the pension, either as widow's pension or children's pension or both.
