Early PF withdrawal won't be easy by Vikas Dhool Reported on 29th December, 2010.

NEW DELHI: Withdrawing the provident fund balance each time you switch jobs could soon become a thing of the past if the country's apex retirement fund has its way. The Employees' Provident Fund Organisation (EPFO) has urged the government to bar workers from pulling out their PF balances on changing jobs.

"Every six months to a year you change your job and withdraw your PF. That makes us more like a bank," said Central PF Commissioner Samirendra Chatterjee.
"The PF account should serve its purpose of social security having a Rs 15,000 balance at retirement is ridiculous," Chatterjee said. "It's in the larger interest of workers to bar withdrawals," he said. EPFO's call for change has been spurred by an alarming internal study of this year's PF settlements at PF office in Karnal, Haryana . As many as 89% of the cases settled at the office, which covers a blend of old and new economy industries, were those of workers withdrawing PF balance after resigning from a job. Just 0.8% workers opted to transfer their PF account to their new job. The settlement amount for 82% of the workers pulling out their PF was less than Rs 30,000. Nearly 65% workers withdraw their retirement savings before the age of 35. Just 3% EPF members had continuous service of 10 years a prerequisite to be eligible for pension benefits from EPFO. The study inferred that 50% of claims are from people withdrawing their PF at the age of 31.33, after working for 2.7 years. They typically take home Rs 10,000, it said. "Sure, people need money, but they shouldn't consume all their savings at every opportunity," said Chatterjee. Existing PF rules specify that an employee can withdraw his/her entire EPF contributions two months after leaving a job. However, there is a condition that the employee shouldn't start working elsewhere in that period. If another job is taken up within two months, the EPF balance must be transferred to the worker's new PF account at his/her new workplace. But these rules are impossible to implement as EPFO has no systems in place to prevent workers from getting new PF accounts with every job switch. Its accounting systems are archaic and operations are still being computerised incrementally. The PF commissioner has asked all field offices to do an analysis of their settlements over the past year, so that the government can be convinced about the need for change. Other provident funds like the Coal Miners' Provident Fund and the Seamens' Provident Fund restrict withdrawals

to special circumstances, while the New Pension Scheme doesn't allow any withdrawals before the age of 58. The EPFO was set up in 1952 to ensure that India's workforce is assured of some income security in old age. The rising claims from young workers is detracting focus from more crucial regulatory functions of the EPFO like monitoring defaults from employers, conducting audits and scrutinizing returns. Quick withdrawals also hurt EPFO's investment earnings as 70% of PF contributions are withdrawn within 3 years. For over a decade, the department has tried unsuccessfully to assign a unique account number for individuals to retain through their working lives. In the absence of such a system, even if one changes jobs within a single PF office's jurisdiction, the department can't block withdrawal claims on account of resignation. A few employees do opt for transfers so that their retirement savings accumulate instead of being frittered away. But the transfer process is too tedious, requiring one to co-ordinate between two employers and two PF offices. The result- most workers withdraw such piecemeal retirement savings each time they join a new firm. "Transfers used to take long as they are additional work and low-priority even for the employers. You have already left them so they have no interest in forwarding applications to us," Chatterjee said. An attempt is being made to streamline transfer of PF balances from past jobs into workers' current accounts. Last week, testing began in Delhi and Karnal offices on new software that would transfer PF balances electronically, within a month. If this goes smoothly, it would be replicated across the country from the first week of January.