EPFO’s new withdrawal rules aim to strike a fine balance between flexibility and social security

Underlining the importance of compounding returns, Central Provident Fund Commissioner Ramesh Krishnamurthy said that the Employees’ Provident Fund Organisation (EPFO) has tried to strike a fine balance between flexibility and old age security with its new rules for withdrawals.

In an interaction with Business Today, Krishnamurthy said the general feedback is that it is a positive move, and it is beneficial to the workers, not only in the short term, but also in the long term. “We have tried to balance both the long-term need for social security and the short-term need for meeting any emergency or any other immediate financial requirement of members,” he said.

The Central Board of Trustees of the EPFO had in its meeting on October 14 simplified the partial withdrawal provisions of the EPF Scheme by merging 13 provisions into three broad categories, including essential needs such as illness, education and marriage; housing needs and special circumstances. However, a provision has also been made for earmarking 25% of the contributions in the members’ account as Minimum Balance to be maintained at all times.

The move had sparked a lot of debate with some raising concerns that the EPFO was holding back 25% of the member’s contributions while others had critiqued the decision for making it much easier for members to withdraw crucial retirement savings.

However, Krishnamurthy pointed out that the EPFO’s analysis showed there was a huge explosion in the number of claims for illness, which jumped to nearly 3.24 crore. “Illness is the only claim that does not require any documentation need, has an unrestricted frequency, and had no restriction on withdrawal. Based on their needs, members would keep filing these claims,” he said, noting that the thinking was that why should there be an artificial distinction. “We wanted to give that flexibility. We also realised that frequent withdrawals were depleting the long-term social security requirements of members, and that was also not very desirable. That is why we have tried to achieve this fine balance,” he elaborated.

Meanwhile, talking about recent reforms undertaken by the EPFO to simplify transactions, the CPFC noted that measures such as removing the requirement for cheque leaf for withdrawals and simplification of the joint declaration process have benefitted subscribers significantly.

“The focus of all our reforms has been to do away with manual interventions, any kind of discretion, unnecessary or redundant processes,” he said, underlining that the EPFO is working on more reforms for ease of transactions for members.

“Not only have these reforms made it easier for members, but they have also reduced the workload for our own officers. Now more officers are freer to do slightly more significant work and focus on claim settlement. We have started to see reduction in grievance in categories like JD and transfer,” he further said.

Previously, members had to upload a cheque leaf or attested copy of the bank passbook for online claims. “That was not necessary at all, because we were able to validate the bank account from the bank itself, directly and electronically, which is much more secure. We removed that provision and already, about three crore claims have been filed without the cheque leaves being approved,” Krishnamurthy said.

Similarly, removing the need for approval from the previous employer for transfer of PF balance has already benefited nearly about 35 to 40 lakh transfers.