EPFO subscribers may face restrictions on early pension withdrawal: Report
What's the story
The Employees' Provident Fund Organisation (EPFO) has reportedly proposed restrictions on the early withdrawal of pension contributions by formal sector workers. The proposal is part of a new scheme that will be notified under the labor codes, according to BloombergQuint. The move is aimed at raising the pension amount for members. Hence, the EPFO has proposed curbs to limit frequent withdrawals from pension schemes.
Quote
'Withdrawals may be permitted after 2 years' exit from employment'
Documents reviewed by BloombergQuint stated, "It is proposed that the new pension schemes to be framed under the Social Security Code, members may be allowed to withdraw benefit from pension schemes only after two continuous years of exit from employment."
Details
Existing system allows withdrawal after 2 months
Currently, withdrawal of contribution from the pension scheme can be done two months after exiting a job. "Due to frequent withdrawals, a member superannuates with lesser pensionable service and consequently gets lower pension. Without such withdrawals, members would get far higher pension," stated an agenda document for a Thursday meeting of EPFO's central board of trustees, where the proposed pension scheme will be considered.
Existing situation
What is the existing structure?
Currently, formal sector workers contribute 12% of their wage (basic pay and DA) toward EPFO's schemes. Their contribution is matched by their employers. Of this, 8.33% of the employers' share goes toward the pension scheme. Subscribers then receive a fixed pension. The pension amount remains fixed irrespective of the contribution made from wages during one's employment tenure.
Other changes
Under new scheme, newly employed can create individual pension accounts
Separately, the proposed scheme will also create individual pension accounts for the newly employed. The pension scheme will be grouped into three categories: existing members; new members earning up to Rs. 15,000/month who join after the social security code is enforced; and, new members earning up to Rs. 15,000/month. For existing members, the only change would be a curb on withdrawal of pension.
Other changes
For new members, pension will be collected on new formula
New members will be able to customize the contribution toward the scheme. "The member may either choose for lower pension in the beginning which increases over time, or the member may opt for relatively stable pension over a long period of time," the document stated. They can review contributions every three years. They will be allowed to contribute to the scheme even during unemployment.