EPF - Undeserved subsidy or a forced investment?

In this article, the author has expressed a view that EPF is an investment which is forced upon the employees, and govt. must give an option to all employees to opt out of EPF because of it's complex nature and low service orientation of PF departments which make the employees run from pillar to post in case of transfers & withdrawls.

Till this year's budget, EPF used to be a very silent financial instrument, which was not discussed in detail, and was taken as matter of fact. The budget proposal to tax the EPF has stirred the hornet's nest. Economic survey pointed out how the so called well off classes are taking away huge amount of subsidies which are duly undeserved (As per the survey).

Let's sit back and look at things differently.

What really is EPF?

I want to start by saying that EPF, or Employee provident fund is a huge jumble of self created complications and nothing else. And the budget proposal on EPF are going to create further complications of even larger degree. First of all the "Employee Contribution" and "Employer Contribution" - these terms have no meaning. I mean what do we mean by "Employer contribution" ? Are there any free lunches in life ? Ultimately the money denominated as "Employer contribution" is the employee money only and Employers very well count this money in CTC, the total pay or whatever they call in respective organizations. So the first simplification to be done is to make it one entry instead of 2 entries.

Another complication happens whenever we change jobs. On changing jobs complex forms need to be filled up and moved around to get the PF transferred. This is such a frustrating process and numerous times the transfer applications are rejected and the PF account holders don't even get the rejection letters, while it is claimed by PF departments that the rejection letters have been dispatched. If you want to withdraw the PF in part of full, again the process is extremely complex and frustrating. One can go and see long queues in the PF offices and the kind of response given is not very pleasant. So to get one's own money the account holder has to run around from pillar to post.

Budget proposal and suggestions

Now, let me go back to the economic survey, and the subsequent budget proposal. The survey said that "Well off" classes are getting subsidy which they should not get. I am asking that why is this subsidy and EPF as a whole being forced upon the so called well off classes. First of all, how well off are salaried classes is a matter of different debate. My suggestion is that well off classes should be given an option to opt out completely from the EPF scheme. Afterall, it's my hard earned money, and I don't need anyone to tell me how to do my retirement planning. There are financial services companies who provide retirement solutions, if anyone needs they can go and buy those plans as per individual's requirement. And please don't burden us with so called subsidy, deduct the taxes from income- but give us an option of not depositing any money in EPF. Govt. has a lot on its plate like making roads, protecting the borders, maintaining law and order, creating jobs, making laws etc etc. Retirement planning is one thing which it can leave to the people, because if they are grown enough to vote, to work in organizations, to earn money - I am sure they will have wisdom to plan their retirement.

One explanation that was coming was, that this will impact only 70 lac of the account holders so it can go through. I want to ask that do those 70 lac people not matter ? Have they done anything wrong that they be penalized ? First you get the deposit by showing tax saving, then you tax it - so why did you exempt it at the first place ? Will a layman ever be able to understand such complex rules ever?


My only suggestion is to simplify the things as much as possible. You give whatever exemption you want by means of standard deduction. Then leave it on employees to decide whether they want to avail of retirement planning by govt. and whether they want this forced subsidy. Because I am sure there are a large no. of people which need this money badly in present and such deductions reduce the take home salaries substantially. Make the financial market conducive for retirement planning products from private sector so that we may buy those products as per need. Govt should slowly come out of it.

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Author: Ramakrishna Kambhampati14 Mar 2016 Member Level: Diamond   Points : 5

In the above article what you have mentioned, employer contribution and employee contribution have no meaning. But according to me if such a thing is not there the employer simply escape from his contribution and the employee has only to contribute. One more thing about the government EPF scheme is, how the government is thinking that a paltry Rs.1000 (the minimum pension paid) at present is sufficient for a family to lead life in this world in the present scenario.

Our central government thinks the employees who work in their government only have to get pensions and DA equal to the present standards? Are the employees of Private sector are not human beings or they not paying taxes to them? If the author has included these issues in the above article it would be nice. Another thing I don't agree with the author is employees can opt for better options for their savings than this forced provision. But most of the employees who are under this EPF scheme are very low level income earners. Because of this forced system only they are able to save something for their future.

Otherwise they would spend their income without any saving. But the central government is using all their hard earnings for various needs but not returning any substantial form of pension for their livelihood after their retirement. This meager amount is not even sufficient for their monthly medical needs. For many many years they are paying the same meager amounts as pension without any hike is really a shameful thing on part of the government. In the present budget they still tried to save something by imposing tax on these pity poor peoples earnings.

Author: Vinay Jain14 Mar 2016 Member Level: Silver   Points : 3

Thanks for your response. I think you have answered all questions for yourself. I have following points to add -

1. Employees under this scheme are low income earners. Which means that their already low income is further hit by EPF deductions, making the present in hand income insufficient.

2. When EPF was started, then we didn't have private sector so evolved in financial services such as Mutual funds, Insurance and retirement planning. But now we have a plethora of companies offering products suitable to all levels of requirements.

3. I have suggested that govt. should slowly limit it's role in retirement planning. Following are the suggestions -

(a.) Make EPF completely optional
(b.) Restrict EPF to a certain level of annual income say 5 lacs.
Above 3 lac income, don't force to be a part of govt. retirement plan.
(c.) Below 5 lacs also, EPF be made optional for employees

This will save huge amount of money in subsidies for the govt. and at the same time give more income in hands of employees, and give them freedom to choose from various retirement plans available in the market.

While employees are forced to contribute to EPF, they get in to taking loans for various requirements, so anyways how does it help. On one side you deposit your money and on the other side, you pick loans from markets. Doesn't make any sense.

To run the EPF, govt. has thousands of staff around the country, the whole engine that runs EPF costs hugely to our exchequer, then the so called subsidy on interest payments etc, and over above all, are the employees happy with the same ? It calls for some sort of study, feedback and it should be evaluated in the present circumstances. For sure, everyone doesn't need EPF.

Author: Ramachandran Pattabiraman15 Mar 2016 Member Level: Diamond   Points : 4

As a HR person, I am telling that the EPF is a real savings to an employee whatsoever the criticism or comments. It is an indirect savings to an employee from which one cannot easily withdraw and the realization of such EPF savings will be understood by them only on the day they receive the PF accumulations. For this my request to the present EPF members is not to withdraw the accumulations on any ground when they leave some job as they could get the same transferred to their next employer's account.

Author: Kailash Kumar18 Mar 2016 Member Level: Platinum   Points : 4

Budget proposal to tax Employee's Provident Fund or EPF withdrawals has already been reversed.
Also only during the current budget the Government of India has announced to pay the Employee Pension Scheme contribution of 8.33 per cent for all new employees enrolling in EPF for the first three years of their employment and has made a budgetary provision of Rs. 1,000 crores for the same.
Regarding the opinion expressed by the author to totally close the EPF scheme and leave it to the wisdom of the employees to take a retirement scheme, it may not be possible. The Government has an obligation to see to it that post retirement, the employees are not living a life of penury. It is doubtful if all employees will be able to save and invest in post retirement plans.

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