EPF Withdrawal Before Retirement- Is It Right for You?

Employee Provident Fund is basically a retirement fund managed by the Employees’ Provident Fund Organization (EPFO) under the Employees’ Provident Fund and Misc. Act, 1952. Since the private sector employees do not have a dependable pension offering, PF savings play a crucial role in ensuring social and financial security post-retirement.

Generally speaking, you can withdraw the corpus on retirement at the age of 58. However, there are certain situations in which you can withdraw your EPF balance even before retirement.

Situations When You Can Make Pre-Retirement Withdrawal from EPF

On Leaving Job/Unemployment

As per the latest rules, the government has allowed employees to withdraw 75% of their EPF balance in case they have been unemployed for a month. Also, one can make a complete withdrawal of the EPF corpus if the contributor has been unemployed for two or more months.

On Marriage

A member, who has completed seven years membership of the EPF fund, can withdraw upto 50% of his EPF contributions at the time of his own marriage or marriage of his daughter, son, or siblings, separately.

For Education

An EPF contributor can withdraw upto 50% of his EPF savings for funding post-matriculation education of the member’s son or daughter. However, again the member should have completed seven years of EPF membership before claiming this withdrawal.

Buying or Constructing a House

An EPFO member can also withdraw his EPF account balance in case he decides to buy a house or construct a house. The EPF contributory can use upto 90% of his EPF accumulations to make down payments to buy/construct houses or pay EMIs for home loans. The member should have completed five years of EPF contributions before making a claim under this category.

Medical Emergency

One can also claim for pre-mature EPF withdrawal on the grounds of medical emergency for himself or for some family member’s treatment. The contributor can withdraw 6 month’s salary (Basic+ DA) or employee’s total share with interest, whichever is lesser. However, the member needs to furnish documents to prove that he is not a member of Employee State Insurance  (ESI) facility.

For Repayment of Existing Loan

In order to pay the outstanding principal and the interest on some existing loan, EPF pre-mature withdrawal is allowed out of the EPF fund balance of the member. However, the loan should have been taken in the name of the member or his/her spouse or jointly and the member should have completed 10 years of EPF contribution.

Some Other Situations

• In case, when an employee is dismissed from his position and he challenges the decision in the court of law, he can withdraw upto 50% of the amount available in his fund.
• An EPFO member can withdraw upto 90% of the EPF amount at any time after attaining of the age of 54 years or within one year of his actual retirement on superannuation, whichever is later.
• A physically handicapped member can withdraw from his EPF kitty for purchasing equipment required to minimize his hardships. Such a member can withdraw 6 months salary or his total EPF balance or the cost of the equipment, whichever is lesser. However, the member is required to produce a medical certificate signed by a competent medical practitioner.
• If a factory or establishment where an EPF member is employed, remains closed for more than six months than the member is eligible to withdraw 100 percent of the employer’s contribution along with the interest if the employee remains unemployed and no compensation is paid to him.

Should You Withdraw Your EPF Corpus Before Retirement ?

There can be no universal answer to this dilemma. The decision of pre-mature withdrawal of your EPF corpus depends on many factors and therefore, varies from person to person. It depends on your financial health, risk appetite, alternative investment perspective, and returns expectations.

So if you are a conservative investor in your approach, you should not deplete your EPF corpus by making any pre-retirement withdrawal as it will take care of your post-retirement financial needs. Currently, the government is providing returns at the rate of 8.55% on your EPF balance as interest credit which is somewhat higher as compared to fixed deposit return.

Further, the long-term returns along with the principal are not only tax-exempt at every stage but also government guaranteed. However, the fund is always available for withdrawal in case you can’t find any other source at the time of some emergency.

Withdrawing your EPF corpus can be a good move if you are using it for constructing or buying a house as the home loan rates in the market are higher by a significant margin as compared to you what you get on your EPF contribution.

Having said that, an aggressive investor with a moderate risk appetite but higher returns expectations may not find the EPF investment so attractive. A smart investor would also take prevailing inflation rate in his account while calculating absolute returns from his EPF investments which are not comparatively impressive.

There are many alternative investment avenues available with much better returns in form of mutual funds, ULIPs and ELSS. However, these returns are market-linked and therefore not absolutely guaranteed. One can opt for debt mutual funds or SIPs or NPS to minimize the risk and still have higher returns than the EPF.

However, if you are a person who is not comfortable with the juggling of the investments and have zero risk appetite, rest assured that EPF will take care of your post-retirement needs.