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Let your provident fund do its job
Deepti Bhaskaran, Outlook Money | June 13, 2008
You are about to take up an exciting new job. Even as you say warm goodbyes to your present colleagues, attend farewell parties and take away your personal belongings from your office drawers, are you leaving behind a lifelong friend?
The Employees' Provident Fund account often gets left behind in the old workplace and gets ignored in the euphoria of new jobs. Often our attention it drawn to it only when the gentleman from the accounts department in the new workplace calls up for details to route the fresh provident fund deductions.
Unlike tax deductions that get influenced by, among other things, tax saving investments or expenses, and, therefore, remain within your sight, contribution to the provident fund account gets deducted before you get your paycheque. As a result, it often gets ignored even as it silently builds up a corpus for your retirement thanks to contributions by you and your employer that can be up to 12 per cent of your salary (constituting of basic, dearness allowance and retaining allowance, if any).
In many cases, when people change jobs, they end up ignoring money lying in existing PF accounts and open fresh ones without transferring money from the older one. Eventually, after some more job switches, the older accounts fall off people's mental radars.
Your PF account is portable and can be continued with during your whole career despite any number of job changes. You can turn it into a lifelong friend, much like the pug in a popular mobile phone service provider's advertisement.
Let the PF account be an uninterrupted effort to have a large corpus. However, if the need is great, you can also partially or fully withdraw money. This can happen in instances when you expect to be under a spell of prolonged unemployment, a transition to self-employment where you would want to continue with your retirement accumulation efforts or have no other option but to tap a part of this money to meet requirements such as those for kids' higher education, health expenses or building a house.
Here is a guidemap on how to transfer your provident fund account or withdraw money from it either partially or in full.
Transferring the account
When you move to a new job, your EPF account does not get transferred with you automatically. You have to ask your previous PF office, which maintained your account, to transfer it. You need to fill up Form 13 (available at www.epfindia.com) and give it your present employer along with your EPF account number with the previous employer.
You can get your account number from the HR or administration of your previous organisation. The number is a function of your employee code, the PF regional office with which the account is maintained and your employer's PF code.
After your present organisation gets these details, it adds your current account number and submits the form to the regional office with which your previous employer maintains the account.
Pension. Your EPF not only offers you a lump sum during retirement, but also pension for life. Of the 12 per cent of your salary that your employer contributes to the account, 8.33 per cent gets diverted to the Employees Pension Scheme, which offers a defined benefit at the age of 58 years.
This 8.33 per cent contribution, however, is made till your basic salary is Rs 6,500 per month. Therefore, when you diligently transfer your PF account after every job switch, you secure a source of regular retirement income.
To encash your PF money, you need to fill up Form 19 and submit it to your previous employer. The PF office lets you withdraw the entire amount on medical grounds, voluntary retirement and unemployment for more than two months.
The mandatory break of two months for withdrawal is often circumvented by submission for the claims once two months have passed after a change of organisation. Women employees who leave their job to get married do not need to wait for two months.
In addition to Form 19, you also need to fill up Form 10C, which lets you withdraw the pension money that your employer contributes. However, if you do not wish to withdraw your pension money, you have the option of obtaining a scheme certificate through the same form which continues your pension account even as you encash your PF money. So, you can submit the scheme certificate in the next organisation that you join and carry forward your pension account.
Since the system is fraught with loopholes and making a full withdrawal is just a matter of submitting an application two months after quitting a job, there are plenty of cases of people taking out their money. However, with the plan of having Social Security Numbers in the pipeline, it may be that there will be just one account number that will move across jobs, and then withdrawals may not be that simple.
Claim timeline. A claim is mandated to be paid within 30 days of being registered with the PF office. If this 30-day deadline is not met, your PF office is liable to pay you penal interest on the claim amount at the rate of 12 per cent per annum. This will be paid from the salary of the regional PF commissioner.
It is a good idea to not encash your account, but the scheme does provide for partial withdrawals in case of emergencies. You can withdraw for many purposes like housing, medical emergencies, marriage of self or children, and college education of children.
However, there are certain restrictions with every kind of withdrawal. To take out money for housing, for instance, you need to be a member of the EPFO for at least five years and the maximum amount you can withdraw is the basic plus DA for 36 months, or your and your employer's share for 36 months, or the cost of construction, whichever is the lowest.
It is easy to spend on present consumption and forego accumulation for the future in the form of EPF money, which will give you both a lump sum and pension. It will serve you well to not take a myopic view. Stay invested in it and lug it everywhere you go as it can give you some respite in the second innings of your life.
A number to give you company
The 13-digit Social Security Number the Employees' Provident Fund Organisation is working on will be unique to every employee and make the EPF account portable. Says A. Viswanathan, chairman, EPFO: "You can show your SSN to your new employer and he will then contribute to the same account." Transfer of account and creation of a new number will not be needed with job changes.
This will check undue withdrawals and ensure accumulation of fund. Complete withdrawals are allowed after an unemployment period of two months. Many people withdraw their EPF money two months after leaving an organisation and do not give details of the new employer.
A person can be tracked by the PF office only through his employer and different organisations assign different EPF numbers to him, so it is not possible to detect such withdrawals.
The EPFO is planning a smart card that is likely to have details of all the EPF contributions made so that a person can easily find out how much he had contributed at any given point of time. Says Viswanathan: "We didn't make it alphanumeric or adopt the PAN because we wanted to eventually upgrade it so that people will just have to punch in their number to get information. Besides, PAN could have been difficult to procure for people with lower incomes."
So, SSNs have been generated for 3.4 million of 45 million EPFO members. For now, you will have to fill up an SSN form at the time of withdrawing money and, eventually, new entrants will have to fill up the SSN form. The EPFO is still not ready to give a deadline to the operation.