In a significant change in the withdrawal conditions for over 30 crore members of the Employees’ Provident Fund Organisation (EPFO), the retirement fund body’s Central Board of Trustees in its 238th meeting Monday streamlined the categories for drawing out funds to just three — essential needs (illness, education, marriage); housing needs; and special circumstances. Withdrawal limits have now been eased with education withdrawals allowed up to 10 times and marriage up to 5 times from the existing limit of 3 partial withdrawals for marriage and education combined, as per a statement by the Ministry of Labour and Employment said.
The Board, chaired by Union Minister of Labour and Employment Mansukh Mandaviya and having representatives of employees and employers, also approved the requirement of the minimum service period to withdraw funds to 12 months from minimum 5 years for housing,minimum 7 years for education & marriage and any time during service for other withdrawals. The Ministry also said that EPF members can now apply for withdrawals without specifying any reason under ‘special circumstances’ category as against the requirement to clarify the reasons for partial withdrawals such as natural calamity, lockouts / closure of establishments, continuous unemployment, outbreak of epidemic etc. earlier which would often result in rejection of claims.
EPF members, however, would be required to earmark 25 per cent of the contributions in their accounts as the minimum balance that they would need to maintain at all times. “This will enable the member to enjoy a high rate of interest offered by EPFO (presently 8.25 per cent) along with compounding benefits to accumulate a high value retirement corpus. This rationalisation enhances ease of access while ensuring members maintain a sufficient retirement corpus. Scheme provision simplification along with greater flexibility and zero need for any documentation will pave the way for 100 per cent auto settlement of claims for partial withdrawal and ensure ease of living,” the Ministry said.
As part of EPFO 3.0, the CBT also approved a digital transformation framework for provident fund services that will include integrating a proven core banking solution with cloud-native, API-first, micro services-based modules for account management, ERP (enterprise resource planning), compliance and a unified customer experience. “Implementation will proceed in phases, ensuring secure, scalable and uninterrupted services,” the Ministry said, adding that the initiative will enable faster, automated claims, instant withdrawals, multilingual self-service and seamless payroll-linked contributions.
Committee to be formed as per RBI proposal; nod for portfolio managers
The EPFO will also soon form a committee to discuss the recommendations by the Reserve Bank of India (RBI) on its fund management and investment practices, a CBT member said. “The committee will be formed with domain experts, both internal and external. Outside experts also will be part of the EPFO’s internal committee. We will examine the RBI’s suggestions and then give recommendations which are then likely to be taken up for discussion in the next meeting that will take place by the end of this year or early next year,” the member said.
In February this year, the Ministry of Labour and Employment had written to the Deputy Governor of the RBI, seeking RBI’s advice on various aspects pertaining to the fund management and investment practices of the EPFO. The Ministry had requested the RBI to examine systemic, policy, and capacity-related issues within EPFO’s fund management and investment framework. The RBI’s officers had then sent a report to the Ministry which gave a number of suggestions including the need to conduct a scientific and rigorous actuarial assessment of the liabilities vis-à-vis its assets separately for all its schemes. The RBI had also recommended a considered and gradual approach to diversification including increasing exposure to equities and other asset classes to enhance returns and mitigate the yield trap and managing risk through phased investments, strict risk controls, and regular portfolio reviews.
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At present, equity allocation of the EPFO stands at 15 per cent of the fresh accretions. The EPFO invests 45-65 per cent in government bonds and 20-45 per cent in corporate debt. It can invest a minimum of 20 per cent in corporate bonds, which can go up to 45 per cent. The RBI has recommended removing the floor for corporate bond investment citing a mismatch between corporate debt issuance and size of fresh inflows. The RBI has also recommended separation of regulatory and fund management functions of the EPFO citing dual role of managing various funds and regulating similar provident fund trusts by other entities.
The EPFO’s CBT also approved the selection of four fund managers for managing the debt portfolio of the retirement fund body for five years — SBI Funds Management Ltd, HDFC AMC Ltd, Aditya Birla Sun Life AMC Ltd and UTI AMC Ltd, the Ministry said.
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