Stiffer EPF withdrawal norms likely

With the outflow in the Employees Provident Fund rising at a rapid rate on account of withdrawals, high interest rate is just one of the vexing issues the Central Board of Trustees is faced with when it meets next week.

The EPFO will be seeking the board's approval for tightening the provisions for withdrawals made from the fund.

According to a proposal that might be considered, around 40 per cent of the total contributions made by a member in a year can be blocked and released only after the member attains the age of 58 or at the time of death.

The proposal to restrict withdrawals assumes importance as more and more EPF members will be approaching the retirement age.

In 2002-03, EPFO's net receipts in non-exempted funds turned negative for the first time with outflows on account of partial withdrawal and final settlements exceeding contributions by Rs 466.3 crore.

In the same category, the outflow on account of final settlements grew by 58 per cent in two years from Rs 4,186 crore in 2000-01 to Rs 6,621 crore in 2002-03 and partial withdrawals grew by nearly 30 per cent to Rs 1,373 crore in the same period.

In comparison, contributions went up by only 17.6 per cent to Rs 7,528 crore. The new norms under consideration also seek to tackle the issue of more and more people withdrawing their contributions through a final settlement at retirement on resignation.

About 90 per cent of final settlements at present can be attributed to closure of accounts because of change in jobs. The new norms are expected to make members accumulate a reasonable amount for their old age and discourage them from availing of early pension and opting for commutation of pension.

It has also been proposed that half of the remaining 60 per cent contribution will be kept aside for withdrawal for construction or purchase of a house provided the member has contributed to the fund for 5 years and has a minimum balance of Rs 20,000.

At present, over 80 per cent of the accounts have a balance of less than Rs 20,000 in their provident fund account. The withdrawals on account of housing stood at Rs 575.46 crore in 2002-03.

The remaining 30 per cent of the corpus is expected to be allowed to be withdrawn once in five years through a simple application. This is expected to rectify the existing situation in which withdrawals are event-based with different eligibility periods for different withdrawals.