At its 238th meeting, the Central Board of Trustees of the EPFO approved several measures to enhance member convenience and retirement security. While the liberalization of partial withdrawals is a welcome step, the decision to stretch full withdrawal timelines—from two months to 12 months for EPF and up to 36 months for the Employees’ Pension Scheme (EPS)—has drawn sharp scrutiny.
According to reports, the average EPFO account balance at retirement is below ₹2 lakh. The extended timelines are meant to deter premature withdrawals and encourage continuity of the Universal Account Number (UAN). EPFO expects that by making full withdrawals harder, members will instead rely on partial withdrawals to meet short-term needs.
However, this well-intentioned reform risks creating new challenges for members.
Giving birth to newer problems
The core verification trap
Currently, only full withdrawals trigger a detailed validation of an account—merging past employment records, fixing KYC (know your customer) mismatches, and verifying contribution histories.
By contrast, partial withdrawals bypass these checks, creating a trap where members discover discrepancies only when attempting a full withdrawal.
Resolving such issues requires the ex-employer’s cooperation—already difficult after two months, and nearly impossible after 12 months when HR staff may have changed or companies become unresponsive.
Further, EPS eligibility issues—such as incorrect salary caps or missing pension contributions—remain hidden during partial withdrawals. We’ve seen too many cases where members were eligible for EPS, but employers didn’t deduct the contribution—or did so incorrectly. It creates a mess at the time of withdrawal.
International relocation crisis
Indians relocating abroad will face particular hardship. Many prefer closing EPF accounts before departure to avoid cross-border paperwork. The 12-month rule now forces them to either delay their move or leave funds behind, knowing that fixing issues from overseas is far more complicated.
Locked-in without exit options
While EPFO permits partial withdrawals up to 75% during job loss, critical emergencies—such as medical crises—have not been fully addressed.
Unlike PPF or small savings schemes like SCSS (Senior Citizens Savings Scheme), Sukanya Samriddhi, or NSC (National Savings Certificate), which allow premature exits with modest penalties, EPFO provides no lien or penalty-based flexibility.
This means even in a life-threatening situation, members can’t access the last 25% of their decades-old savings—turning what should be a financial safety net into an inflexible trap.
Unclear and confusing provisions
Differentiating withdrawal timelines for EPF (12 months) and EPS (36 months) introduces unnecessary complexity.
The 25% retention rule also raises questions:
- Does it include accumulated interest, or just contributions?
- If interest is included, delayed passbook updates will confuse members.
- If it’s only on contributions, the retained amount will be too small to matter.
Further, if the 25% limit resets after each withdrawal, members could drain the account entirely through repeated withdrawals. If not, calculating eligibility becomes messy.
Fix what matters first
EPFO should take a pragmatic approach to ensure reforms don’t disadvantage members in genuine need.
First, it should offer category-specific exemptions. The 2-month withdrawal timeline must be restored for emigrants (verified via visa or job offer) and Startup India-registered entrepreneurs facing legitimate immediate needs.
Second, allow a penalized premature exit. Make the 25% retention rule optional, with a small 1% penalty for early withdrawal—encouraging long-term savings without forcing it.
Third, introduce short-term loans against PF balances, similar to the PPF model, instead of only no-return partial withdrawals.
Fourth, conduct pre-verification of EPS eligibility at the time contributions are received. If members qualify, accept pension contributions; if not, block them. This prevents errors arising from incorrect or missing employer declarations.
Fifth, create a clear escalation mechanism for members facing unresponsive ex-employers. A fast-track system with automatic approval after documented follow-ups fail would help resolve lingering claims efficiently.
EPFO’s intent to protect retirement savings is commendable, and the liberalized partial withdrawal norms reflect a genuine commitment to member welfare. But well-intentioned reforms risk backfiring if implementation ignores on-ground realities.
Retirement security and member flexibility are not mutually exclusive. With thoughtful execution, category-specific relaxations, and stronger verification systems, EPFO can achieve its goals without trapping members in bureaucratic limbo during life’s most critical transitions.
(The author is founder and CEO of Kustodian.life, a tech firm that helps resolve claims across EPF, banking, Wills, and trusts.)
