NEW DELHI :
The federal government might separate the provident fund and pension accounts of tens of millions of formal sector staff lined by the Staff’ Provident Fund Organisation (EPFO) so as to shield month-to-month pension payouts.
The transfer is being seen as a pension reform underneath the labour code on social security. Authorities imagine that when EPFO subscribers have a separate pension account, they received’t withdraw their pension accumulations together with workers’ provident fund (EPF).
When staff withdraw their provident fund, they find yourself breaking into their pension fund, too, as a result of they’re a part of a single account for the time being, in response to two authorities officers.
The issue has grow to be acute publish the pandemic, with mounting joblessness. A complete of seven.63 million workers have dipped into these financial savings underneath a clause referred to as covid advance as of 31 Might 2021, following the outbreak of the pandemic final 12 months. Since 1 April 2020, some 39 million claims, together with covid advances, have been settled by EPFO as of 19 June 2021.
Of the cumulative 24% statutory EPFO contributions by each workers and employers each month, 8.33% goes to EPS (worker pension scheme) and the remainder to EPF. Whereas withdrawing from EPFO on account of any purpose, subscribers typically withdraw all their financial savings, together with the pension quantity. This, in response to the federal government, defeats the aim of retirement pension profit provisions.
“Below EPFO, the PF and pension schemes should have two separate accounts. Whereas there ought to be no drawback in withdrawing the PF corpus when required as per legislation, the pension account ought to be ideally saved untouched. It will improve pension earnings and supply higher social security protection,” stated one of many two officers who declined to be named.
The official stated the matter was mentioned at an EPFO board assembly earlier this 12 months after an inside authorities panel suggested the separation of EPF and EPS accounts.
The official stated if resulting from any purpose a subscriber dips into the pension corpus, “the pension account can present a commuted worth”, that means the post-retirement pension quantity might come down. To discourage untimely withdrawals, publish the pension reforms, if a subscriber decides to interrupt their pension fund, they could lose some incentives.
“At the moment, EPFO subscribers are in a pool account system. What is required is a separate account for EPF and pension. Individuals are demanding extra pension and, for that, separation is one of the best answer. As soon as they’re separated, a subscriber can contribute extra to pension and grow to be eligible to get extra pension post-retirement. Because the covid-19 second wave is subsiding, you will notice extra motion on this entrance,” stated Virjesh Upadhyay, a central board member of EPFO.
In keeping with the draft plan, the Worker Pension Scheme “ought to transfer in direction of an outlined contribution system, whereby every particular person scheme member is allotted a person pension account, and the advantages admissible to the member are linked to the contribution acquired within the stated particular person pension account.”
Upadhyay, a former pension panel member of the EPFO, stated there’s a risk of two separate schemes—one for these incomes beneath the wage cap of ₹15,000 monthly and one other for all these subscribers who’re incomes extra.
The federal government presently contributes 1.16% to the pension kitty of each PF member incomes a month-to-month wage of lower than ₹15,000 as a part of the workers’ pension scheme of EPFO.
“This subsidy for poor and low paid subscribers ought to proceed. However, general, there ought to be a mechanism to cease workers from withdrawing pension cash prematurely, and for that, there’s a want for checks and balances,” stated Upadhyay.
“As soon as points are ironed out, and EPFO central board approves it, will probably be introduced. The reformed scheme for brand new workers is anticipated to be based mostly on particular person pension accounts and shall incentivize steady and long-term membership of the pension schemes. For members who be part of early and proceed membership until the age of superannuation, the pension shall be accordingly a lot greater than for many who be part of at a later age,” the second official with data of the event stated.
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