What you should consider before availing new PF withdrawal facility for housing
Financial Planners say withdrawing PF to finance life’s goals should be a well-considered move and the last among all financing options
Sarbajeet K Sen
The Employees’ Provident Fund Organisation (EPFO) has recently relaxed its norms to allow subscribers to withdraw 90 percent of the total accumulated corpus for purchase of a home.
While the move is laudable and would provide PF subscribers another avenue to finance a dwelling unit, what are the cautions that one needs to adopt while withdrawing one’s retirement savings for specific needs?
Financial Planners say withdrawing PF to finance life’s goals should be a well-considered move and the last among all financing options. "EPF is long-term savings for retirement and it is not advisable to dig into the retirement funds unless and until there is a dire need of it. It should be one of the last options,” says S Sridharan, Business Head, Financial Planning, Wealth Ladder Investment Advisors, told Moneycontrol.
Sridharan says the EPF subscriber should ensure that EMIs on the finance for the house should be within one’s repayment capacity. “The subscriber should ideally ensure that repayment is not more than 50% of the overall income,” he said.
Manoj Nagpal, CEO, Outlook Asia Capital, says subscribers have to balance the needs for immediate fund and need to build a decent retirement corpus while deciding on the withdrawing their EPF. “EPF withdrawals or loans against the corpus have been fairly relaxed leading to EPF being used as just an accumulation tool rather a pension/retirement corpus. One needs to have a fine balance between using their retirement kitty for life specific needs such as housing, children's education and having a decent retirement corpus. Generally, life-specific needs take precedence over retirement thus reducing the final retirement corpus,” Nagpal said.
However, he said having a retirement corpus to meets meet financing needs during the golden years is critical. “Creating a retirement corpus to the quantum of around 20-25 years of current annual expenses is critical to take care of the growing life expectancy and inflation. If one is on track on this, then one can use the incremental surpluses for purchasing a house,” Nagpal said.
He said in a joint family model, retirement needs may not have been a bigger concern but with the emergence of nuclear family model even in Tier II cities, withdrawing one’s retirement savings may create a disparity for the set of individuals who will retire in the next decade or two.
Under the new withdrawal norm, an EPF subscriber who is a member of a co-operative or housing society with at least 10 members can withdraw up to 90 per cent from the fund for purchase of a dwelling house or flat or construction of a dwelling house and acquisition of site.The employee is a member of EPFO for at least three years and accumulation in the member's PF account (or together with the spouse), including the interest, has to be more than Rs 20,000. The facility will be provided only once.