EPFO chief defends 25% PF balance mandate: 'Corpus for long-term social security'

EPFO

The Employees' Provident Fund Organisation (EPFO) has defended its decision to make it mandatory for members to retain at least 25% of their PF balance. Calling it a 'prudent and balanced' move, EPFO CEO Ramesh Krishnamurthi said that maintaining at least 25% provident fund balance will prevent members from exhausting their entire savings before retirement.

"The idea was to make it easy for people to access their PF money in times of need, but also protect their corpus for long-term social security," Central Provident Fund Commissioner and EPFO CEO Krishnamurthi told CNBC-TV18.

Maintaining the PF balance will allow members to earn the 8.25% annual interest and gradually grow a robust retirement fund.

As per the revised norms, members will now be able withdraw up to 75% of their PF balance at any time but 25% will remain locked as a minimum retirement buffer.

Frequent withdrawals are weakening members' social security benefits, Krishnamurthi argued. According to EPFO data, nearly 50% members end up with under Rs 20,000 at final settlement, and 75% of pension contributors exit the scheme within just three years.

EPFO now also requires members to wait for 12 months for final withdrawal, up from two months. This norm revision has drawn widespread criticism.

Refuting the criticism, Krishnamurthi said that in case of 'special circumstance' members are permitted to withdraw up to 100% of eligible balance twice a year. "The 12-month rule actually preserves pension eligibility as many members were exiting PF accounts entirely after short stints," he said. "If unemployment continues beyond 12 months, even the reserved 25% becomes withdrawable," the EPFO CEO added.

In a huge relief for members, withdrawals under the 'special circumstance' category can now be made without stating any reason.

The government is of the view that the EPFO subscribers should get the benefit of interest credited to accumulated corpus every year, and thus it has increased the time period for full withdrawal to 12 months from 2 months earlier, a senior government official told Moneycontrol.