Remove hurdles, revamp PF system thoroughly

The Employees’ Provident Fund Organisation (EPFO) and the Government of India seem to believe that the employees, in general, are spendthrift. They, therefore, want to check this attitude by hook or by crook. They think that the employees, unmindful of their action leading to an eventuality of depending on their offspring or others in the evening years of their life, prematurely withdraw and squander their own provident fund, if they are given the freedom to lay hands on it.

The EPFO has the proof for this ‘irresponsible’ attitude of employees. The Central Provident Fund Commissioner K K Jalan says that as many as 65 lakh claims out of a total 1.3 crore annual claims at present are for premature withdrawals.

In fact, the EPF norms provide a scope for the premature withdrawal of full amount in the member’s account under some circumstances and subject to certain conditions. The purpose for such withdrawals, as specified under Chapter VIII of the EPF Scheme 1952, include: a member not getting reemployed even two months after losing the job in an EPF covered establishment; purchase of a site for construction of a house on it, or purchase or construction of a ready built house or flat.

The EPFO wants to change this and has recently sent a proposal to the Union Labour Ministry to restrict the premature withdrawals to 75 per cent of the accumulated sum, annulling the 100 per cent provision. It does not want the employees to touch the remaining amount till they attain 58 years of age.

It looks that the PF organisation is not going to stop at this 75 per cent restriction. Already, there are hints that it may be brought down to 50 per cent  which means the present step is only a small beginning for the big things to come.

While this is going to be a direct action to stall provident fund subscribers from using their own money when they are out of employment or when they badly need the money to acquire a dwelling unit, the government has already put in place from June 2015, a clever mechanism to discourage certain types of withdrawals.

As announced in the recent budget, the Finance Act of 2015 has inserted a new section, 192 A, in the Income Tax Act of 1961 in order to deduct income tax at source (TDS) on PF withdrawals of Rs 30,000 or more of the employees who worked for less than five years subject, of course, to certain exceptions.

The PF organisation and the government say that these measures are in the interest of the employees; to strengthen their welfare and particularly to safeguard their interest during their old age. Whatever may be the outcome of these measure, one thing will certainly happen: the EPFO and government will get more funds.

As it is, the government is boasting that about Rs 1 lakh crore funds are flowing in every year into the PF kitty and the present corpus is a huge Rs 6.5 lakh crore. One estimate predicts the PF corpus to reach Rs 20 lakh crore 10 years from now.

The approach of the PF reforms seems to be garnering more funds from the employees and from the employers on their behalf while creating hurdles in the employees using their own money when they most want it – when they lose their employment or when they seek to own a house.

The proposed restriction on premature withdrawals, for instance, is going to add to the inoperative accounts of the provident fund. Right now, there is a huge amount of about Rs 32,000 crore lying unclaimed with the EPFO. The Labour and Employment Minister Bandaru Dattatreya recently disclosed that 8.08 crore accounts, which is more than 50 per cent in the total 15.54 crore EPF accounts, were inoperative as on April 1, 2015.

Retirement benefit

The reforms, with the welfare of the employees at heart, could have taken a different form and been designed to yield better retirement benefit to them instead of creating hurdles in accessing their own savings for useful purposes.

In particular, the paltry pension under the employees’ pension scheme would have been enhanced through raising the salary limit from the present Rs 6,500 to the actual whereby the EPF members could get 50 per cent of their last salary as pension, helpful for a decent living. However, decisions like this and enhancing the returns on the PF balance of employees does not seem to be on the government’s agenda.

The recent move to invest the PF amount in the stock markets is also unlikely to give employees the projected benefits, even in the long term, in view of the frequent booms and busts of the stock markets. Its first tranche investment in Exchange Traded Funds (ETFs), in August-October, is reported to have yielded a miniscule 1.52 per cent returns.

The Central Board of Trustees (CBT), in its meeting held the other day, has decided to get the matter reviewed by the Finance Audit and Investment Committee (FAIC) after its discouraging experience; although it had pooh-poohed the objections on these investments in the beginning.

All this suggests the need for a thorough re-look at the social security arrangement in the country and to revamp the existing system to ensure a secured life during the old age of the citizens.

The authorities must realise that creating hurdles in employees accessing their own savings would prove counterproductive. After all, they cannot be expected to pilfer their own hard-earned savings! In fact, denial of employees’ rightful benefits amounts to forceful stealing from them.