The Telegraph
Since 1st March, 1999
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Average PF on retirement: Rs 30,000

Mumbai, May 18: After years of toil, an average Indian wage-earner gets a measly Rs 28,000-30,000 on retirement as dues from his employees provident fund account.

Experts tracking pension funds in the country attribute the low pay-outs to the government’s allowing low-salaried employees to withdraw money from their EPF account.

“The scheme has a liberal withdrawal policy. It has seven options where you can take permanent withdrawals. Only in two cases are the withdrawals temporary and need to be paid back,” Baman Mehta, CEO of Darashaw & Co, a premier brokering firm for pension funds and debt paper, told The Telegraph.

The EPF Scheme under the Employees’ Provident Fund and Miscellaneous Act, 1952, covers the full spectrum of private sector employees in over 177 industries. A normal wage earner has to contribute 8.33 per cent of his earnings into his EPF account.

The EPF’s liberal withdrawal policy coupled with low contributions during the years of service has left many retired people in a bad way at a time when interest rates have hit rock-bottom.

Mehta says the average wage-earner’s “terminal amount can be pegged at Rs 28,000-30,000”. His calculation is based on the assumption that the average salary of an employee opting for the EPF scheme is Rs 6,500, which is the limit set for individual exclusion under the scheme. Those earning above Rs 6,500 a month can choose not to opt for the scheme.

Mehta adds: “One can conclude that the participants when averaged across the 21 million participants have salaries less than Rs 6,500. Therefore, low average salaries coupled with the liberal withdrawal policy result in low terminal balances.” Experts say those earning less than Rs 6,500 have little savings and this leads them to borrow from their EPF fund.

Most of the withdrawals from exempt provident funds or privately-managed employee funds are temporary. One can therefore expect these exempt fund members to have a higher EPF accumulation.

In many cases, withdrawals are allowed in instalments two to three years prior to retirement. Here too, the EPF balance on retirement is low, but the instalment provision helps members of the scheme immensely.

The EPF scheme allows non-refundable loans for purchase of plots, houses and flats, construction of houses and acquisition of a site for house construction.

Withdrawal for repayment of loans in special cases include advances for illness (even that of a family member), marriage or education, as well as advances following floods, quakes or riots. An advance is also allowed to physically handicapped members.

Members are also allowed to withdraw from such EPF schemes before retirement.

Experts feel “it would be ideal” if the government stopped permanent withdrawals or at least made members repay the sums they withdraw. “This would be to the employees’ benefit,” they said.

Retired investors are feeling the pinch nowadays as interest rates, the main source of income for them, are diminishing. The recent Reserve Bank rate cut has made many banks further reduce their deposit rates. Also, government pension schemes for those earning below Rs 6,500 prove inadequate.

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