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In 2017, Pune resident Makrand Boite had to withdraw his entire PF (provident fund) corpus to fund the medical expenses arising out of a serious heart surgery. “I had needed the money back then, and it was necessary. I wasn’t worried about savings back then,” he said. Fortunately, the company he worked for strived hard to provide the much-needed documentation quickly, and he was able to withdraw the money without many hiccups within a short time.For people like Boite, the new Employee Provident Fund Organization’s (EPFO) draft regulations might create trouble. The regulations have created a social media storm, with experts weighing on both sides. Among the revised rules, the EPFO now mandates that employees can withdraw only up to 75% of their PF corpus at any given time. The rest of 25% will be ‘held’ by the government for posterity. In the government’s own words, “25% of the contribution needs to be retained to ensure respectable corpus”. Withholding The Withdrawals?While it would seem that employees like Boite might be in trouble as per the new regulations, this might not be the case. According to the new rules, 75% of both employee and employer contributions towards PF can be withdrawn, resulting in a larger withdrawal amount.Most financial experts too back the new rules. “There are good and bad provisions in the regulations. Most people treat EPFO like an SB (savings bank) account and withdraw savings and fail to save for later on. So, the 25% rule doesn’t sound as bad,” said Abhishek Kumar, founder and CEO of Sahaj Money.Moreover, even the balance 25% can be withdrawn under certain conditions. The Ministry of Labour said in a clarification that full PF can be withdrawn in circumstances like attaining 55 years of service, permanent disability, incapacity to work, retrenchment, voluntary retirement or leaving India permanently.Loan Versus PF Lying AroundFor many Indians, PF becomes a crutch that they rely on. Rahim Farzad, an employee of a telecom company in Trichy withdrew his provident fund (PF) for the first time seven years ago. He withdrew over 70% of his corpus after 15 years of working, which came to around Rs 14 lakh, for the construction of his house.“If I had to take a loan back then for my house, I would have to pay 11% interest on it. But I had my own money lying around as PF, which was earning around 8% interest. So, I thought, what is the point in keeping it around, and I took it for the house,” he said.Yet, not all withdrawals are done for altruistic reasons either. Farzad withdrew Rs 6-7 lakhs in a second tranche, citing his sister’s wedding, but used it for various purposes, including investments, he confessed. “I did not see much value in keeping the PF for retirement. I already have it planned,” he claimed.Provident Funds Vs Mutual FundsSince many people tend to withdraw their PF, half of the members have less than Rs 20,000 in the PF balance at the time of retirement, the ministry said in a note. “Due to repeated withdrawals, the workers with lower salaries do not realise the benefits of compounding at 8.25% and thereby lose out on higher social security at the end of their working life,” it adds.As per a PIB press release in June, as many as 2.34 crore advance claims were settled through auto-settlement by EPFO, indicating the size of PF withdrawals. For many, money lying in the PF account could amount to many significant milestones in life.Farzad does not believe that pulling out a large chunk of PF will leave him with less in the future. He doesn’t consider PF as an investment vehicle. Since then, he has been able to build a nest egg, with diverse investments. “I have some money in mutual funds, stocks, land and even cryptocurrency,” he added.A few experts believe that it might not be wise to police people on how much they save or spend.Suresh Sadagopan, a financial planner and the founder of Ladder7 Wealth Planners, however believes that forced savings might not be a good idea. “If someone wants to take the money out and spend it, it’s their prerogative. Allowing withdrawal of 75% of EPF amount after job loss will help greatly, as it should still be a sizable amount,” he adds.Bhoite too had other plans for his second round of withdrawal, which he accumulated after the first withdrawal. However, he failed this time. “During the pandemic, I saw an opportunity to invest heavily in the stock market as it was crashing in 2020. I tried to withdraw Rs 6-7 lakh that was accumulated in the account of my second job for the same. However, it was stuck due to a technical issue of my father’s misspelt name. I lost a good opportunity as it could have multiplied during the bull run,” he laments.Where Are The Savings?Yet another debated question on social media was the withdrawal in case of unemployment. In case of unemployment, 75% of the balance can be withdrawn immediately, and the remaining 25% can also be withdrawn after one year. Even the one-year wait rule has been eased in some ways,...
