After separating EPF and EPS, account holders will not be able to withdraw their pension fund along with provident fund. Experts are calling this a good step.
The government can separate provident fund (PF) and pension accounts. Both of these currently come under the Employees’ Provident Fund Organization (EPFO). This has been mentioned in a news of Mint. This is being done to secure the monthly pension payouts. After the introduction of this reform, account holders will not be able to withdraw their pension fund along with the provident fund. Experts are calling this move good and they say that it will help in securing the retirement of the employees.
Suresh Surana, Founder, RSM India says, “With this step, account holders will be able to withdraw PF money without any tampering with their pension fund. This is a good move in the long run.”
Advantages and disadvantages
The main advantage of this is that subscribers will be able to withdraw their provident fund without causing any injury to their retirement corpus. Segregation of these accounts will enable the subscribers to continue with their pension funds.
In order to provide relief due to Kovid-19, the government has allowed the subscribers to withdraw advance from their provident fund. Due to this, the amount of PF dues of many PF holders has come down.
Shweta Jain, Founder and CFP, Investography says, “While any financial planner would say that access to pension funds should be very limited so that retirement is secure, people in the current situation are in trouble due to salary cuts and job losses. Many people have only the support of EPF at this time.
Surana says, “However, after the reform, the subscribers will not be able to touch their pension savings. People will not be able to use this money even in case of emergency.
What are the current rules?
The Employees’ Provident Fund (EPF) scheme is applicable to all such employees whose organizations come under the purview of EPFO. These are companies that have more than 20 employees.
This scheme is mandatory for employees with salary up to Rs 15,000 per month, while it is optional for employees earning above salary to opt for EPF schemes.
Of the total EPFO contribution (employer and employee) of 24% from salary every month, 8.33 percent contributes to EPS (Employee Pension Scheme), while the remaining amount goes to EPF.
Is it necessary to differentiate?
According to financial experts, this could be a good idea after a year or two from now when things return to normalcy. Jain says, “Once out of the current environment, people will again have a chance to build a better retirement fund. At this time, efforts should be made that people do not drown in debt.