It’s easier for people to access Provident Fund. That’s welcome

On Monday, the Employees’ Provident Fund Organisation announced several tweaks that make it easier for members to dip into the corpus in times of need. This is a welcome move. Members can now not only withdraw upto 100 per cent of the eligible balance, but can also withdraw multiple times with the limits being liberalised. For those who may need to draw on their savings to meet, for instance, the educational needs of their children — fees to educational institutions are paid over several years — or to cover their health expenses — in some diseases like cancer, the treatment is spread out over several weeks and months — these changes will bring about greater flexibility, easing liquidity constraints.

In the case of partial withdrawal, the existing categories have been streamlined into three groups: Essential needs (this includes illness, education and marriage), housing and special circumstances (under this, members can apply “without assigning any reason”). In the last category, as members formerly had to clarify the reason for withdrawal and it often led to rejection of claims, this is a significant change. Considering that during the Covid pandemic, members had extensively dipped into their EPFO corpus under the special facility provided — till May 21, 2021, it had settled around 76.31 lakh Covid-19 advance claims (in 2021, there were 25.88 crore members and 4.63 crore contributing members), perhaps for meeting their income shortfalls and/or their health expenses — this new framework will greatly facilitate ease of living. A young and growing workforce — as per the latest data, net payrolls have averaged around 1.3 crore over the last three years, with roughly half of them below the age of 25 — should have the facility of being able to seamlessly dip into their savings. After all, a large number of subscribers are left with a corpus of around Rs 1 lakh close to their retirement, implying that they tend to make early withdrawals from their PF.

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The EPFO’s board has approved the formation of a committee with members from the Finance Ministry, the RBI and the Ministry of Labour and Employment following the central bank’s report on its fund management and investment practices. This is a welcome move as it could bring about greater clarity and transparency in its functioning. The RBI has, reportedly, recommended the separation of the EPFO’s regulatory and fund management functions. It has also called for a rigorous assessment of its liabilities with regard to assets. Considering its past investments in companies such as IL&FS, there may be scope for its risk management systems to be strengthened. There is also a call for diversifying the portfolio, increasing exposure to equities, to increase returns. Any such move should be carefully considered. The EPF is a vital part of the social security architecture in India. Any change in its portfolio allocation strategy, which will translate to a change in the risk-reward profile, warrants careful analysis.