The Government is considering a proposal to allow subscribers of the Employees’ Provident Fund Organisation (EPFO) to pledge their “future stream of provident fund (PF) contributions” to pay off a housing loan.
The option has been recommended by an expert committee set up by the retirement fund body to facilitate housing for its subscribers as part of the government’s mission to ensure housing for all by 2022.
Under the proposal, when a subscriber purchases a house with a loan from a bank or a housing finance company, he can take an advance from his PF accumulation and also sign a tripartite agreement with the bank and the EPFO for pledging his future PF contributions as equated monthly installment (EMI) payment.
The scheme would, however, be available only for low-cost housing and subscribers whose monthly salary is less than Rs 15,000. These workers constitute about 70 per cent of the EPFO’s five crore subscribers.
“The committee was of the view that the majority of the members of the EPFO belong to vulnerable sections, and given their monthly earnings, the amount of loan required and availed by them would be less… the monthly PF contribution stream would cover a major portion of the loan EMI,” said the report which was submitted to the government recently.
The eligible subscribers could also be permitted to avail a benefit or subsidy by the Ministry of Housing and Urban Poverty Alleviation through its schemes for purchase of housing for economically weaker section (EWS) to supplement the EMI.
The report is expected to be taken up for discussion within the Ministry of Labour and Employment and then presented to the EPFO’s Central Board of Trustees (CBT) over the coming months.
The expert committee, which was set up in February this year following a recommendation by the CBT, unanimously backed the proposal but recommended that the retirement fund body would not provide standing guarantee for payment in case of default by the subscriber.
“Under the proposed tripartite agreement, the only obligation on part of the EPFO is to make available or pledge to the bank the future stream of PF contributions that are received by a member till such time that the loan is completed,” said the report.
So in case a subscriber gets laid off, the EPFO will not be responsible for re-paying the loan. In such cases, banks can take action against the person. The committee has pointed out that the option would also improve the credit worthiness of the subscribers and not impact their monthly take home salary.
At present, 12 per cent of a worker’s basic salary — up to Rs 15,000 per month — and a matching contribution of 12 per cent by the employer is deducted as PF contribution every month; 8.33 per cent of the employer’s contribution is then diverted into the Employees Pension Scheme (EPS). Subscribers are also allowed to make premature withdrawal from their retirement fund for building a house.
The committee had considered other options such as purchase of low-cost dwellings by the EPFO from agencies like HUDCO and NBCC; creating subsidiary to purchase plots for construction or houses; releasing the full PF accumulation to subscribers purchasing a house as well as providing a subsidised loan through the EPFO for the purpose.