Explainer: EPFO 3.0 Modifications, New Provident Fund Rules and Why it is Both; Simple yet Concerning

The Employees' Provident Fund Organisation (EPFO) has been modified with its withdrawal rules, now allowing members to take out up to 100 per cent of their EPF balance. The fresh rules have been announced after the decision taken in the 238th meeting of the Central Board of Trustees (CBT), chaired by Union Labour and Employment Minister Mansukh Mandaviya.

As per the government, this is aimed at making it easier for over seven crore members to access their savings while also securing their retirement. However, the reactions have already started pouring in which also includes contrary voices highlighting the in accessibility of own money for as good as a tenure of one year, as per one of the rules.

According to reports covering the statement of the EPFO's Central Board of Trustees: “The liberalisation of partial withdrawals ensures members can meet immediate financial needs without compromising their retirement savings or pension entitlements.”

In terms of modifications, EPFO has combined 13 different withdrawal rules making it one. This includes withdrawals falling under three categories: Essential Needs (illness, education, marriage), Housing Needs, and Special Circumstances.

What is directly impacting?

• Members will now be able to withdraw up to 100 per cent of their EPF balance, which also includes employee and employer contributions.
• Education withdrawals will be allowed up to 10 times, and marriage withdrawals up to five times, as compared to the earlier where the combined limit was three.
• For any partial withdrawal, the minimum service period will be 13 months.
• Under Special Circumstances, members will not need to give reasons for the withdrawal.
• At least 25% of the total balance will be required to remain in the bank account.

"It brings much-needed digital efficiency, faster fund access, and greater transparency, benefiting employees, HR teams, and the EPFO alike. It would accelerate fund access for employees, simplify compliance for HR teams, and improve operational efficiency for EPFO itself," says Anoop C Nair - Head of Human Resources of Indel Money. 

For the settlement of disputes

There will be automatic settlement of withdrawal claims wherein no documents will be required. As per the EPFO’s new launch, the 'Vishwas Scheme', the aim is to reduce legal disputes over delayed PF payments. Reportedly, about Rs 2,406 crore in penal damages are pending across 6,000 court cases currently with another 21,000 cases waiting under the e-proceedings systems.

Secondly, the penal damages will be charged at 1 per cent per month. The shorter delays will include a charge of 0.25 per cent for up to 2 months and 0.5 per cent for up to 4 months. All pending cases under Section 14B of the EPF Act will be covered under the scheme.

Digital Life Certificates Announcement

The EPFO is going to partner with India Post Payments Bank (IPPB) to provide doorstep Digital Life Certificate (DLC) services for EPS-95 pensioners. The certificate will cost Rs 50, borne by the  EPFO.

On the other hand, EPFO has also launched EPFO 3.0, which is a digital upgrade. This advanced system will use a Core Banking Solution and cloud-based technology aiming to provide faster, more secure, and user-friendly services.

Criticism on a very points

As per the reports, within a day of the announcement, some reactions have come in, especially negative over the withdrawal limit being increased from 2 months to 12 months. This suggests that if one is unemployed, they cannot withdraw the full amount before 12 months, which was earlier just 2.

Some have also raised concerns about the mandatory 25% balance to be kept. It is very likely that with unemployment comes the dire need for money, and it is adamant that members will like to use the fund earned by them, and, with the new rules, that does not seem to be a possibility.

However, Mr. Nair sees it in a positive light. "I would like to see the 25% retention rule as a forward-looking measure designed to protect the average Indian employee, who might otherwise deplete their savings without considering long-term retirement needs. The revised provisions provide employees with enhanced financial flexibility and safeguards their long-term retirement interests."