MC EXCLUSIVE Government may allow you to dip into your PF once every 10 years

As per sources, the total members of EPFO are over 7.4 crore

Salaried employees may not have to wait to lose their jobs or retire to withdraw money from the Employees’ Provident Fund (EPF) account if a proposal by the Employees’ Provident Fund Organisation (EPFO) goes through.

The Centre is considering relaxing the stringent rules for withdrawing money from the retirement fund. It may allow subscribers to withdraw the entire corpus or a part of it once every 10 years, two senior officials have told Moneycontrol.

"Subscribers should have the flexibility to manage their finances and plan their retirement," one of the officials told Moneycontrol. "Every 10 years, there would be some addition to the accumulated corpus of each and every EPFO’s member… they should decide what they need to do."

At present, a full withdrawal is allowed only after a member retires, typically at 58, or is unemployed for more than two months.

Change coming?

If the changes are implemented, members might be able to withdraw their corpus in full in their 30s as well, said the second official. "This would give flexibility to the members to choose what they intend to do with their EPF savings," the official said. Both officials spoke on condition of anonymity.

"The government might also allow only 60 percent of the accumulated corpus to be withdrawn every 10 years and not the full amount. It’s under consideration," the second official said.

EPFO has more than 7.4 crore members and the funds’ corpus is around Rs 25 lakh crore.

At present, partial withdrawals are restricted to special needs such as housing, medical emergency, education or marriage.

From this month, EPF members can withdraw up to 90 percent of their corpus to purchase land or build a house. Earlier, only those who saw a constant addition of savings for five straight years were eligible to withdraw 90 percent of the money for housing needs, but the threshold has now been relaxed to three years.

The EPFO has also raised the auto-settlement limit, which doesn’t require an additional approval from the retirement fund, for advance claims to Rs 5 lakh from Rs 1 lakh, allowing members to receive "funds faster, in times of urgent need", a June 24 release said.

"Most of the changes with respect to withdrawals in the last one-and-a-half years are to help members access their EPF savings in a more flexible and hassle-free manner… to encourage members to handle their finances more prudently. The 10-year rule is being considered for this purpose only," said the first official.

Not everyone is sold to the idea

Experts, however, say that the periodic withdrawal proposal while well-intentioned, risks undermining the core purpose of the scheme — building a secure retirement corpus through long-term and uninterrupted compounding.

"Therefore, the contours and conditions of such withdrawals must be carefully calibrated to ensure that short-term financial flexibility does not come at the cost of long-term retirement security for the subscriber," said Akshay Jain, partner, Saraf and Partners.

"While providing members with greater flexibility over their funds has clear merits, the central theme guiding the new decadal withdrawal rules must be to establish a prudent limit on how much of the retirement savings can be converted into current spending, thereby safeguarding the primary objective of a secure retirement," he said.

Rohitaashv Sinha, Partner, King Stubb & Kasiva, said greater access to PF can lead to higher liquidity in the market, particularly in the real estate , to the benefit of salaried workers and the economy. "Nonetheless, EPF guarantees future retirement security, and taking out funds too often exposes a subscriber to a loss of savings further in life in case essential uses are not made of the funds," Sinha added.

Experts also say that improving EPFO’s IT infrastructure is vital before introducing these changes. The infrastructure is inadequate to cater to frequent demands, which can be a concern in terms of implementation and fraud.

EPF is a popular retirement savings scheme where both the employee and the employer contribute a portion of the employee's salary. The money, along with earned interest, is aimed at providing financial security after retirement.