Employees’ Provident Fund Organisation (EPFO) manages and maintains the provident fund account of all subscribers. It has made a few changes recently and has tweaked some of its processes to make it more user-friendly and less time consuming. Earlier, EPF was one of the most complex schemes which is being modified and revamped by the organisation. Let us have a look at some of the important modifications in the EPF rules:
EPF Interest Rate
The interest rate offered on EPF was 8.80% in 2015-16 which has been reduced to 8.55% for 2017-18. Even though the current interest rate is lowest in past five years, the rate cut is lesser than that of other savings schemes. The interest rate offered on PPF has been reduced from 8.7% to 7.6% in the same timeframe. Most financial advisors insist employees to not withdraw their funds prematurely and transfer their funds in case of job change instead of withdrawing the amount.
Earlier subscribers were allowed to withdraw their funds completely and go for the final settlement if they remained unemployed for two months or more. As per the current modification, an employee will be eligible for withdrawing 75% of the accumulated corpus after a month of leaving the job. He can withdraw the remaining 25% of the fund and opt for final settlement after the second month if he remains unemployed for more than two months.
Even though the scheme will ensure that your monetary needs are taken care of at the time of unemployment, it will seriously have a strain on your retirement corpus. It is thus advisable to prevent yourself from withdrawing the amount at the time of unemployment.
EPFO’s Investment in Equity
EPFO invested in fixed income instruments to generate its revenues until recently. But the organisation started investing in stock market and invested 5% of the incremental corpus in equity Exchange Traded Funds (ETF) three years ago. The investment has been increased to 15% of the incremental corpus lately, amounting to ₹ 47,500 crores where it earned a return of 16.07% on the investment. In future, EPF members can be given the option to manage their equity contributions, albeit partially. The option to choose investment type, however, has not yet been provided to subscribers. Once allowed, more risk-taking members can invest larger part of their corpus in stocks and hope to gain more.
Revamped EPF Services
EPFO has revamped its processes and has made provisions for members to avail services online. It introduced the Universal Account Number (UAN) through which multiple PF accounts of a member can be brought under a single umbrella. It has largely reduced complications in the system at the time of linking various PF accounts or withdrawing funds.
Earlier, employers used to open new PF accounts at the time of job switching. Now, the employee has to just provide the UAN number to the new employer and funds in the previous account is transferred in the new account without much hassles. An employee has to register on the EPF member portal using his UAN and he can avail all facilities online.
More EPF Contribution for More Returns
The government is planning to limit the allowances component in an employee’s salary to a maximum of 50% of the basic salary. Currently, employers keep basic pay low to ensure that their contribution towards social security schemes is moderate to cut company costs. However, after the modification in the rules, the contribution for both the employee and the employer (both the employee and the employer contribute 12% of the Basic Pay + Dearness Allowance) will increase. As a result, the employee will take home relatively lesser pay whereas the overall amount at the time of retirement will increase substantially.
Changes in the EPS
At present, all members earning a minimum of ₹ 15,000 become eligible for a minimum guaranteed pension amount of ₹ 1000 after retirement if they contribute towards EPS for a minimum of 10 years. The employer’s contribution of 12% is divided into 8.33% towards EPS and the remaining 3.67% towards EPF. The labour ministry is planning to increase the wages ceiling to ₹ 21,000. It is also planning to double the minimum monthly pension amount to ₹ 2000. Thus, more the contribution more will be the pension after retirement.
Unitisation of EPF Balance
EPFO has revamped its accounting policy where a portion of the EPF amount would be invested in equities. The fund will be credited to a member’s account in the form of units. The subscriber will have two account heads under his EPF, namely the fixed income and the equity income. When the member withdraws the money or exits the scheme, he can redeem his units. Earnings from the debt portion of the EPF, however, will still be paid as interests to the member. Once the PF unitisation is implemented, every member’s equity holding will be marked directly with the market. As per the proposal, the subscriber will also get the option to defer his withdrawal from equity investment for a period of up to three years.
The implementations by EPFO are aimed to make the system more employee-centric. It also focuses to provide the services with minimum difficulties and in the least time possible. EPF also is a great tax saving option as it allows an employee to save on taxes under section 80C as well. The contribution and the interest is tax free.