A client of financial planner Arvind Rao quit her job last year to join a start-up, which did not offer employee provident fund benefit. A few months later she approached Rao to help her withdraw the provident fund and invest it in her retirement corpus. As she didn’t have a Universal Account Number (UAN), it’s been a few months since she’s been waiting to get her final settlement payout.
Rao’s client may finally get her money soon. On Tuesday, the Employees' Provident Fund Organisation (EPFO) changed the withdrawal norms that can help such individuals and also those who face a job loss and need funds urgently. EPFO will give members the option to withdraw 75 per cent of their Employees Provident Fund (EPF) after one month of unemployment and keep their EPF account with the body. Members will also have an option to withdraw remaining 25 per cent of their funds and go for final settlement after completion of two months of unemployment under the new provision. The EPFO will pay 8.65 per cent as interest in 2017-18.
By keeping a portion of money with the EPFO, members get to keep their accounts with the EPFO and use them after joining a new job, which can make them eligible for a pension. A certain portion from employees’ contribution to EPF goes towards Employee Pension Scheme (EPS). On completion of 10 years of services, a member is eligible for a pension on attaining the age of 58. But if a person doesn’t complete 10 years, the EPS funds are paid back to the member after deduction of a small penalty.
If a person is going out of the ambit of EPFO – either he’s joining a company which does not offer EPF or starting his own business – the new provisions can help him to get back a significant portion of his funds quickly, especially if he doesn’t have a UAN. “Such persons should plough the EPF money back into their retirement savings or use it to clear high-interest debt, which can in turn help them save more,” says Rao.
But if you are joining another company, it's best that you transfer your funds to the EPF account with the new employer instead of withdrawing it. Also, in case of a job loss, avoid touching your EPF corpus. Instead, rely on your other savings until you find new employment. “EPF is a long-term investment and ideally should not be touched until retirement,” says Arnav Pandya, a certified financial planner. Pandya says that while flexibility is useful for specific cases, it also gives an option for others to break their retirement savings without realising how it can impact their future finances. Financial planners, therefore, suggest that you create an emergency corpus that has enough money to take care of six months of expenses in case of a job loss.
Those with UAN can expect the funds to be transferred within a few weeks. But if you are going to apply for withdrawal by submitting papers to the EPFO office directly, it could take months before you receive the funds. Malhar Majumder, a Kolkata-based wealth manager, says that many of his clients have been facing such issues. “Sometimes the principal is credited to the bank account, and the subscriber has to follow up for months to get the interest portion. It can even take longer to get the pension money,” he says.
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