On 10th February 2016, the Ministry of Labour and Employment, Government of India, made few amendments to EPF withdrawal process. This I think will create some introspection to those who used to be frequent withdrawer of EPF.
Let us see those four changes in detail.
1) You can’t withdraw EPF full balance before attaining the age of 58 Yrs.
This is the biggest jolt to all those who frequently used to change jobs or of habitual to EPF withdrawal. Earlier if you not employed for more than 2 months, then you are allowed to withdraw “Your EPF Contribution+Your Employer EPF Contribution+Interest on both”.
Note-To make this law applicable with smooth, EPFO changed the rule of providing interest rate on such dormant or inoperative accounts. Now from 1st April, 2016 you will get interest on your idle (inoperative accounts) too.
Using this loophole, many used to apply whenever they change the job. Also, there was no system in place at EPFO end to monitor whether the employee is actually unemployed, joining a new company or applied for a withdrawal even been in the job but with a different employer.
This totally failed the main reason of EPF. This investment is not your emergency fund. However, meant for long-term retirement accumulation. If you withdraw as and when it is required, then you may end up with less retirement corpus.
Considering all these points, EPFO changed the rules as below.
“A member who ceases to be in employment and continues to not be employed with a covered establishment for at least two months, may be permitted to withdraw only his own share of contribution, including interest earned thereon. The requirement of ‘two months’ period referred above shall not apply in case of female members resigning from the service for the purpose of getting married or on account of pregnancy/ childbirth.”.
So if you are unemployed for more than 2 months or joining a company where EPFO is not provided, then you can withdraw EPF ONLY YOUR PART OF EPF AND INTEREST ON THAT.
The exception to this rule is for women who be out of a job due to their marriage or pregnancy. Please note that this exception is only to those unmarried female members who are going to marry or due to pregnancy. For the rest of the females there is no change in this rule. They are all treated equally like men. This means for the rest of all EPF members, from now onward not able to withdraw their full EPF until they reach the age of 58 Yrs.
This automatically blocks your employer contribution from being withdrawn until your retirement age.
2) You can use the same EPF account for future employment (even after withdrawal).
Earlier, when you apply for EPF withdrawal, then automatically it consists of employee share, employer share, interest on that and EPS share as per the length of service. After that, such account is treated to be terminated.
As you can see from above first change, you no longer allowed to withdraw fully. So the account will be live until you reach the age of retirement. Hence, you can use the same account for future jobs. I mean you can continue the same EPF account once you join the new company. This automatically transfer the EPF account.
Also, with new UAN feature you can continue the same old EPF with just quoting your UAN to a new employer.
3) Retirement age increased from the current 55 years to 58 years.
Earlier the retirement age for EPF was 55 years. From now onward, it is increased to 58 years. I think this is a good move. Because all other rules related to investments consider retirement age 60 years. So EPFO moving towards that.
4) You can withdraw 90% of EPF balance once you reach the age of 57 years.
Earlier the retirement age of EPF was 55 years. So one is allowed to withdraw 90% of his or her balance at the age of 54 years. This means one year prior to retirement. Due to increase in age of retirement, it now changed to 57 years.
A detailed post on EPF withdrawal and advance was written by me earlier. Refer below link for the same.
These moves, I may say are acted to restrict the frequent withdrawer. Instead making them to force for long-term contribution and create a wealth for retirement...
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