Generally, most Indians are under-prepared for their post-retirement life. Many middle class private sector employees end up consuming their PF accumulations for variety of other reasons like marriage of their children, medical treatment or purchase of house, etc., says Anil Chopra- Group CEO & Director- Bajaj Capital
Employees Provident Fund deposit and withdrawal rules have been in news for more than one reason. Earlier, a proposal was mooted in the Finance Bill 2016 to levy tax on a portion of withdrawals from contributions made on and after April 1, 2016. However, amidst lots of protests, this proposal was withdrawn bringing cheers to millions of EPF account holders.
Second controversy relates to Notification made on February 10, 2016 whereby premature withdrawal rules were tightened. Even this step met with lot of resistance. So much so, that the Government had to withdraw and cancel the February 10, 2016 Notification with immediate effect. Thus, status quo is being maintained.
Let's understand the proposed changes and the reasons for resistance. Provident Fund is primarily a retirement planning solution and temptation must be avoided to utilise PF accumulations on any goal other than retirement planning.
Generally, most Indians are under-prepared for their post-retirement life. Many middle class private sector employees end up consuming their PF accumulations for variety of other reasons like marriage of their children, medical treatment or purchase of house, etc.
Every individual must plan adequately for each of these goals viz. children's education, children's marriage and retirement planning etc. Medical emergencies should be covered by buying suitable health insurance plans and not by dipping into their PF accumulations which is exclusively meant for post-retirement comfortable life.
Please note that even if you retire at 58 or 60, you still have on an average 20 to 25 years to live even after retirement and significant amount of funds are required to lead a healthy and stress free retired life.
In our opinion, Provident Fund is a sacrosanct tool to ensure social security net in your twilight zone when in most cases children go their own independent way leaving their parents to fend for themselves. Thus, tightening of FP withdrawal rules is very much required to safeguard the future of our working classes and also to save them from temptations and emotional blackmailing by family members for premature withdrawals for flimsy reasons like setting up a business for young son etc.
The only exception can be medical emergency and partial withdrawal should be allowed on submission of auditable documentary proof.
Youngsters these days have a habit of hopping from one job to another every now and then. There is also a tendency to withdraw and close the PF Account after every change of job which must be discouraged. If a person is changing employer 5 to 6 times in her/his career and if s/he is allowed to close her/his PF Account and withdraw the balance after each exit, her/his retirement planning will be severely jeopardised.
Withdrawal Rules must be tightened to bring discipline in retirement planning.
Illustration: Uttam Ghosh/Rediff.com
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