EPFO mulling change in withdrawal rules: How it affects you
What's the story
The Employees' Provident Fund Organisation (EPFO) is mulling a major change in its withdrawal rules. If approved, the new guidelines would allow members to withdraw a significant portion, potentially up to their entire provident fund (PF) corpus, once every 10 years. Currently, full withdrawals are only permitted after retirement or prolonged unemployment. The proposed change would give more financial flexibility and control over retirement savings to salaried employees.
Flexibility
Withdrawing entire corpus possible even in 30s
The proposed changes could allow members to withdraw their entire corpus even in their 30s. This would give them more flexibility over how they want to use their EPF savings. A government official told Moneycontrol that the Centre may also allow only 60% of the accumulated corpus to be withdrawn every 10 years instead of the full amount, as part of this proposal.
Existing regulations
Current withdrawal rules
Currently, partial withdrawals from the EPF account are only allowed for specific purposes like housing, medical emergencies, education or marriage. However, from this month onward, EPF members can withdraw up to 90% of their corpus for buying land or constructing a house. The eligibility criteria for this has also been relaxed from five years of continuous savings to three years.
Expert opinions
Proposed changes could undermine retirement security
While the proposed change is aimed at providing more flexibility, experts have warned that it could undermine the main purpose of building a secure retirement corpus via long-term compounding. Akshay Jain, a partner at Saraf and Partners, stressed that "the contours and conditions of such withdrawals must be carefully calibrated to ensure that short-term financial flexibility does not come at the cost of long-term retirement security for subscribers."
Infrastructure upgrade
Need to improve IT infrastructure
Experts also stressed on the need to improve EPFO's IT infrastructure before implementing these changes. The current system is not equipped to handle frequent requests, which could pose a risk in terms of execution and fraud.