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Benefits of Provident Fund: Not Commonly

Known

byV S Rama Raoon March 3, 2011

Despite the popularity of the EPF as a saving tool, not many people are enthused by or aware of

the Employees Pension Scheme. Introduced in 1995, it is funded by diverting 8.3% or a little

more than a third of your PF contribution. Then pension on retirement is linked to the number of

years in service and the average salary drawn in the year before retirement.

However, the scheme has failed to draw the EPFOs members because of the measly pay outs

associated with it. The reason is that since most employers pay PF only on the mandatory salarycap of Rs 6,000 per month, the pension income for majority of workers is abnormally low at

times less than Rs 1,000 a month.

It is however, possible to get a higher pension income. Good employers pay Provident Fund (PF)

contributions on the entire basic salaries. If your basic pay is Rs 30,000 a month, employers can

invest 24% of this amount into your PF account. You will be entitled to a pension on the basis ofyour actual basic pay rather than Rs 6,500.

For salaries up to Rs 6,500 the government also chips in with a subsidy of Rs 75.

Another way smart employers help boost the pension is by raising the workers salary in the last

year of employment. Suppose I earn Rs 25,000 and contribute 8.33% towards EPS. However, onmy 57th birthday my employer can rise my salary to Rs 1 lakh. Since my salary for the last one

year will be Rs 1 lakh. I can get a pension of around Rs 50,000. So you can get twice youroriginal salary as pension. However, for this the employer should have contributed his share tothe Provident Fund on the actual basic salary, not the mandated limit of Rs 6,500 for the entire

service period. Though this is not fair to other employees as they are part of the pension pool, the

pension schemes design makes this manipulation possible.

If you dont want a pension from EPF, you can get the EPS money as a lump sum along with

your PF balance. The benefits will not be linked to the actual contributions made, but to your last

years average salary and the number of years in service.

The EPF rate has to be declared at the beginning of every financial year so that all members

withdrawing or retirement from the system through the year get the interest that is due to them.

But in recent years, the EPF rate has become a matter of prolonged political debate and is oftendeclared and notified much after the end of the financial year. Till the rate is notified for a

particular year, employees withdrawals are credited at the previous years rate. For instance in

2010-11 the concerned ministry announced a rate of 9.5% but it is yet to be notified. So, lakhs ofworkers whose PF claims have been settled so far, have lost out on the 1% increase over last

years rate of 8.5%.

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If you have withdrawn your PF balance during this year while the government hasnt notified the

PF rate you can approach your PF office later to pay you the higher interest rate on the balance.

On the other hand if your claim is not settled within 30 days of applying you can move the court.

If it is established that the delay was due to inadequate reasons you will be entitled to an interest

on the balance at the rate of 1% for every month of delay.

Running short of funds to buy a house? Or perhaps your childs education cost is more than you

had planned for? At such times, its easy to fall back on your EPF savings. While you cant withdraw the entire corpus you can do so partially for specific occasions such as childrens education,

marriage or for buying property. Find out when you can avail of this facility, the amount youcan withdraw and the conditions you need to fulfill.

To obtain the loans as mentioned above you should have completed a minimum of seven years ofservice

The maximum amount you can draw is 50% of your contribution. You can avail of it three timesin your working life.

You will have to submit the wedding invitation or a certified copy of the fee payable to the

education institution.

You can avail of it for major surgical operations in a hospital or by those suffering from TB,

leprosy, paralysis, cancer, and mental derangement or heart ailments.

The maximum amount you can draw is six times your salary or the entire contribution made by

you till date whichever is less.

You must show proof of hospitalization for one month or more with a leave certificate for that

period from your employer. You must also prove that you are not a member of the Employees

State Insurance Corporation or are unable to use its facilities for surgery / treatment.

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