EPFO Pension: Whenever we join a new job, our focus is often on the salary package, offer letter, and new responsibilities. But in this rush, we often forget to transfer our old Employee Provident Fund (EPF) to the new account. Many people consider this a mere formality, but the truth is that money sitting in the old account can undermine your retirement dreams.
According to the new rules for 2026, the EPFO has simplified this process significantly, but negligence may still result in the interest earned being taxed and your pension eligibility being jeopardized.
Major Disadvantages of Not Transferring EPF
If you leave your old PF account as it is, the biggest risk is the possibility of an “inactive account.” According to EPFO rules, if no new contributions are received for 36 consecutive months, it is classified as inactive. Although interest continues to accrue for some time, tax rules become stricter for you. The interest earned on an inactive account is considered your taxable income, and you may have to pay income tax on it every year, gradually reducing your actual savings.
Power of Compounding
The biggest strength of EPF is compounding, or interest on interest. This transforms a small investment into a fund worth crores in the future. When all your money is in a single active account, you earn substantial interest on the increased balance every year. If your money is divided into different accounts, the effect of compounding is significantly weakened.
Simply put, the compounding benefit of a large sum of money in one place gives you much greater returns in the future than investing in smaller amounts separately. Ignoring this means compromising your retirement corpus.
Pension and Service Record
EPF transfer is mandatory not only for savings but also for pension (EPS). Under the Employees’ Pension Scheme, a minimum of 10 years of pensionable service is required to receive a monthly pension after retirement. If you don’t transfer your PF when you change jobs, your service record becomes fragmented.
Even after completing 10 years of total service, you may face significant technical difficulties in claiming your pension due to the records not being updated. Transferring your old service history is integrated with the new account, ensuring your pension is completely secure.
Premature Withdrawal Mistake
People often withdraw their old company’s PF to have some cash on hand instead of transferring it. It’s important to note that if your total service (including all companies) is less than 5 years, you will be subject to significant TDS and tax on the withdrawn amount. However, transferring the funds ensures continuity of service. Thus, upon completing 5 years, your entire deposit becomes eligible for tax-free withdrawal. This is the most accurate way to save your hard-earned money.