EPFO: Over the past few months, the EPFO has implemented several significant changes for the benefit of employees. Pensions will now be calculated based on average salary, PF transfers will be automatic, and funds will be disbursed within minutes through an auto-claim system. The pension limit has been raised to Rs 15,000, and e-nomination has been made mandatory.
If you’re working and your salary gets deducted for PF every month, this info is super important for you. Recently, the Employees’ Provident Fund Organization (EPFO) has rolled out some big rule changes. These changes have a direct effect on your retirement fund, pension, and benefits. So, if you ignore these new rules, you might end up losing a lot of money in the future or miss out on essential services. Without wasting any more time, let’s dive into the major changes EPFO has implemented in the last 10 months that you really need to be aware of.
Higher pension option
With the new EPFO rules, the way pensions are calculated has completely shifted. In the past, pensions were based on your last salary, but now they will be calculated based on the average salary of your last 60 months. This means your pension will reflect the average of your earnings throughout your career, giving you a more reliable benefit. For instance, if an employee’s last salary was Rs 50,000, but their average salary was Rs 40,000, their pension will now be based on that average. This new rule, which took effect on September 1, 2014, has recently been made clearer to ensure that employees get a fair pension based on what they’ve contributed.
PF money in minutes
The EPFO has made a significant move to help its millions of members. Now, if you need to take an advance from your Provident Fund (PF)—whether it’s for building a house, your child’s wedding or education, or a medical emergency—you won’t have to wait long. Thanks to the new rules, the EPFO has set up an “auto-claim settlement system,” which means the money will be sent straight to your bank account in no time. This service is fully digital and designed with transparency in mind to ensure that employees get quick help when they need funds.
In the meantime, the new EPFO rules have combined all partial PF withdrawals into one system. The biggest relief is that the minimum service period for nearly all withdrawals is now set at just 12 months.
The most notable change is that the withdrawal amount will now encompass both employee and employer contributions, along with interest. This means members can now take out up to 75% of their eligible PF balance, which is a big jump from before. You can now access more funds and do it quicker than in the past. After serving for 12 months, an EPFO member can withdraw up to 100% of their PF balance under five specific situations.
First, for medical treatment for yourself or your family (up to three times in a financial year). Second, for your own or your children’s education, you can withdraw 10 times throughout your PF membership. Third, you can take out funds 5 times for your own or your children’s weddings. Fourth, you can withdraw 5 times for housing needs like buying a house, construction, paying off a home loan, or repairs. Fifth, in special cases, you don’t need to provide a specific reason. In these situations, you can withdraw from your PF twice in a financial year.
Even with the new withdrawal rules, the EPFO has kept a 25% withdrawal limit in place to safeguard retirement savings. Data indicates that frequent withdrawals were affecting employees’ long-term security. Many low-income workers missed out on the 8.25% long-term compounding benefit because they withdrew too often. As a result, 25% of the balance is now set aside for retirement.
If you find yourself out of a job, the PF rules offer some leeway. You can take out 75% of your total PF balance (which includes both employee and employer contributions plus interest) right away, and the remaining 25% can be accessed after a year. In certain situations, like retiring at 55, facing permanent disability, being retrenched, opting for voluntary retirement, or leaving India for good, you can withdraw the whole amount.
These updates won’t impact your pension benefits under the Employees’ Pension Scheme (EPS). A PF member can access their pension funds before hitting the 10-year mark in service, but to get a monthly pension after retirement, you need to have been a member of the EPS for at least 10 years.