Earning more doesn’t make you any richer. Saving more does. But with bills to pay, loans to repay, and the temptation to spend your hard-earned money on beautiful things, sometimes it’s truly difficult to notch up those zeroes in the bank. But wouldn’t it be wonderful if you had no choice but to save? If someone else took that decision out of your hands and invested part of your savings wisely? The Provident Fund is just that. It is a compulsory agreement between the employer and employee, which dictates that a portion of your income goes towards long-term savings.
What Is An Employees’ Provident Fund?
“To put it simply, an Employees’ Provident Fund or EPF is your retirement plan,” says personal banker and financial adviser, Karthik Tripathi. “If a company has over 20 salaried employees, it is mandatory to give them the benefit of this government-backed scheme, especially for those who earn lesser than ₹15,000 a month. The employer and the employee each contribute 12 per cent of the basic income and dearness allowance towards the EPF. Of the employer’s 12 per cent, 8.33 per cent goes towards the Employee Pension Fund or EPF. If an organisation has under 20 workers and still wants to offer EPF, the rate is fixed at 10 per cent instead of 12 per cent.
“Provident funds are primarily managed by the Employees’ Provident Fund Organization (EPFO), which maintains over 20 crore accounts across more than 135 locations in India. This comes under the central government’s Ministry of Labour and Employment.”
What Is A UAN?
UAN stands for Universal Account Number. This is allotted to every person who is a part of the EPFO so that they can manage their provident fund account efficiently. It is primarily used to check the status of funds and accruals in your account, but can also be used if you want to make a withdrawal or transfer the funds. A UAN is generated free of charge. If you don’t know your UAN, either your payslip or the human resources team at your workplace can probably help you with it. Otherwise, you can always track it down by entering the mobile number registered with your EPF. It is mandatory to link your Aadhar Card with your UAN, which is a fairly simple process that can be completed online by you or your employer.
What Are The Benefits Of A Provident Fund?
The interest offered on EPF accumulations is quite generous, at 8.15 per cent at present. Also, there are tax benefits to investing in a Provident Fund. If you set aside ₹ 2.5 lacs per year or lesser, this amount is exempt from taxation. Just like every other financial scheme, the EPF has made it mandatory to list a nominee, so you can be assured of a smooth financial transition in any unfortunate event. Also, you don’t need to open and shut down multiple EPF accounts every time you switch jobs. It can be transferred by an employee from one organisation to another, whenever you move. Your UAN number remains the same, regardless of where you’re working.
Is The Provident Fund Compulsory?
If you earn over ₹ 15,000 and have never had an EPF account, you can choose to opt out of it. Once you’re in it though, you can’t exit it easily. However, women could benefit from choosing to invest in an EPF, particularly those who are not in control of their own finances and don’t invest in other lucrative schemes. An EPF is a great way to ensure reasonably high and risk-free returns, while your money sits safe and out of the clutches of anyone but you. Although women leaving the workforce isn’t a new concept, the COVID-19 pandemic accelerated it to the extent that they withdrew their EPFs and shut down their accounts. Data from the National Statistical Office last year reveals that of the women who left the workforce and withdrew their investment, only 18.67 per cent re-joined and re-subscribed to the EPF.
When Can I Withdraw My EPF?
“Ideally, when an individual retires from service completely or stops being a salaried employee to do something else, the EPF is withdrawn completely,” says company secretary, Murali J. “There are a few other special circumstances during which you can request to withdraw your EPF, such as if you’ve had an account with EPFO for five years or more (you can then do a one-time withdrawal of 50 per cent of your EPF savings); it involves your child’s higher studies or wedding expenses; or are purchasing a house. During COVID-19, the government allowed an extra partial withdrawal as a special exemption. If you withdraw before you complete five years of holding an EPF account, then tax will be charged on the entire withdrawn amount.”
Treat your EPF as sacred. Or better still, forget it exists. The more you save, the richer you are in your golden years. Women have a life expectancy of 70.3 years, as opposed to 67.4 years for men. Given the gender pay gap, this also means they have to plan significantly harder for their retirement savings to meet the same lifestyle. After all, in the words of Aya Laraya, “When you invest, you are buying a day that you don’t have to work.”