Withdrawals are draining employees’ retirement corpus: What EPFO numbers reveal

A starker data point — around 95 per cent of these claims are made immediately in the wake of an unemployment stint cited by members, even as official data shows that nearly half of these members are then seen “rejoining EPFO”.

It is perhaps also a pointer to the employment profile of a member of the retirement fund body — over 65 per cent of the EPFO members are making PF and pension contributions at a monthly wage equal to or less than Rs 15,000, the wage ceiling for ‘mandatory’ EPF contributions. A ballpark 35 per cent is making EPF contributions ‘voluntarily’ for wages above Rs 15,000, a senior official told The Indian Express.

This indicates the dominance of formal workers drawing wages at the lower band in the EPFO’s membership profile that includes more than 30 crore accounts with 7 crore plus active contributing members and a corpus of over Rs 26 lakh crore, the official added.

The final settlement numbers do not present a vastly improved picture if one were to view it for higher monetary thresholds — 75 per cent members have less than Rs 50,000 at the time of final settlement, while 87 per cent members have less than Rs 1 lakh at the time of final settlement. In essence, the EPFO was destined to be a retirement fund for organised sector workers in a country where there are barely any other social security nets.

Premature final settlements, which are separate from partial withdrawals under categories such as illness, housing or education, are, meanwhile, clocking a high run rate. For instance, of the total 52.95 lakh final settlement claims in 2024-25 — including claims for retirement, retrenchment or migration — around 95 per cent were premature settlements by members just after two months of unemployment, as per the EPFO data reviewed by The Indian Express. Out of this, 46 per cent or 24.21 lakh members were identified to have subsequently rejoined establishments to become EPF members again.

The trend is the same in value terms, with around 66 per cent of the total amount of final settlement being on account of premature withdrawals claimed by the members for unemployment, as per para 69(2) of the EPF Scheme, 1952 that allows full withdrawal or settlement after unemployment for a continuous period of not less than two months.

“Moreover, it has been noticed that in many cases the EPF members take their final settlements after the employer marks them as having exited employment even though in reality they continue with the same employment. Subsequently, they are shown as re-joinees after a gap of a few months to enable them to take their final settlements. This constitutes a break in their EPF membership which is detrimental to the members’ interest in the long run and also potentially deprives him of his pension entitlements if final settlement is taken from EPS (Employees’ Pension Scheme) as well,” the agenda for the recently-held EPFO board meeting stated.

Any kind of break in the form of such premature final settlement results in ineligibility for family pension in case of death and also lower amount of pension at the time of retirement or superannuation if a member dips into the EPS corpus as well apart from the EPF amount. Under the Employees’ Pension Scheme, 1995, a member needs to put in a minimum of 10 years of pensionable service to be eligible for pensionary benefits later.

From the amount-wise final settlement trends in 2024-25, it was observed that around 22 per cent of the total members get only Rs 10,000-20,000 as their final settlement, which is only around 3 per cent of total amount settled. Also, around 50 per cent of the total settlements are less than Rs 20,000, accounting for only 4.3 per cent of the total amount settled. About 75 per cent of the total final settlements are less than Rs 50,000 cumulatively totalling to 12.27 per cent of the total quantum of settlements, the EPFO data showed.

On the other hand, partial withdrawals have picked pace, especially in the aftermath of the Covid-19 pandemic. Another enabling factor was the scrapping of the requirement for submission of documentary proofs while claiming partial withdrawals in 2017 and the easing of norms for advances and auto-processing of certain types of claims during the pandemic. This resulted in a higher frequency of withdrawals for categories such as illness.

About 3.25 crore claims worth Rs 52,633.92 crore were settled for illness in 2024-25, a 55 per cent jump over 2.10 crore claims worth Rs 33,696.54 crore in 2023-24. The sharp rise in illness-related claims can be seen if one goes back in time even more, for instance, the illness claims stood at 3.13 lakh (Rs 1,154.56 crore) in 2017-18, followed by 22.77 lakh claims (Rs 5,799.75 crore) in 2018-19 and 56.41 lakh claims (Rs 12,706.34 crore) in 2019-20. During the Covid years of 2020-21 and 2021-22, the illness claims had risen to 77.82 lakh worth Rs 14,727.50 crore and 1.15 crore claims worth Rs 19,204.29 crore, respectively.

Due to lack of restrictions on the number of times the illness advance could be withdrawn, even as there was an amount cap of six months of basic wages and dearness allowance, around 58 per cent of the members availed the illness advance more than once during 2017-2025, while around 25 per cent availed it four times.

Partial withdrawal claims for housing also increased but at steady pace over the last few years. About 15.52 lakh claims worth Rs 23,712.46 crore were settled for purchase of a dwelling/house/flat or construction site in 2024-25, up from 11.95 lakh claims worth Rs 18,765.32 crore in 2023-24. This category of claims for housing stood at 4.91 lakh (Rs 8,437.33 crore) in 2017-18 , subsequently increasing to 8.12 lakh claims (Rs 13,625.20 crore) in 2018-19 and 9.28 lakh claims (Rs 14,961.70 crore) in 2019-20.

A sharp rise has also been seen for partial withdrawals under special circumstances category: 6.99 lakh claims worth Rs 1,016.73 crore in 2024-25, up from 3.99 lakh claims worth Rs 588.77 crore in 2023-24. The withdrawals for special circumstances in 2024-25 were the highest in the last seven years. Before this, the highest level was in 2020-21 of 4.17 lakh claims worth Rs 700.37 crore.

The EPFO announced a slew of changes to its withdrawal norms by streamlining the withdrawal categories from 13 to three — essential needs (illness, education, marriage); housing needs; and special circumstances — along with an introduction of a minimum balance of 25 per cent last week.

Withdrawal limits for education or illness have been made more flexible: partial drawals can now be made 10 times for education during the membership and 5 for marriage, as against the existing limit of 3 partial withdrawals for marriage and education combined. Under illness and ‘special circumstances’ categories, withdrawals will be allowed 3 times and 2 times every financial year.

The decisions, however, came under fire from several quarters. Opposition leaders and EPF members raised concerns about workers being unable to dip into their funds if they lose their jobs with an increase in the minimum period for availing premature final settlement during unemployment from the existing two months to 12 months that can impact the availability of funds to lower-income workers at the time of loss of employment.

“Is the money EPFO’s or the member’s? These people are not beneficiaries of some “freebie”, but rather hardworking citizens who are being deprived of their own savings. The government is being subsidised with the middle class’s money,” AIMIM party chief and MP Asaduddin Owaisi said in a post on X on October 15.

The Ministry of Labour and Employment had to then step in to clarify that 75 per cent of a member’s amount can be withdrawn immediately after leaving the job, in line with the 75 per cent withdrawal allowed for other three part withdrawal categories, and the full 100 per cent amount can be withdrawn after remaining unemployed for one year. This essentially implies that changes in the minimum period for premature final settlement, only affect 25 per cent of the PF contribution — minimum balance requirement — while 75 per cent can be withdrawn at all times.

“Without question, people don’t withdraw unless there is a financial need. But the multiple periodicity of the withdrawals affects their corpus, especially for pension in their later years. If a member withdraws prematurely, there is a loss of benefit, especially for pension. Every provident fund member should be a pensioner also if they work for 30 years. So, then why should they not get full benefits? We have to start thinking about the ageing population which would be dependent on their own contributions,” the official said