THE labour ministry has opposed the finance ministry’s suggestion that there should be checks on early withdrawals from the employees provident fund accounts, as it sought to defend the right of subscribers to use their own money.
“We fail to understand what is the overnight provocation behind checking EPF withdrawals,” said central provident fund commissioner Samirendra Chatterjee.“This has been allowed for the last 54 years,” he said.
Financial services secretary R Gopalan had written to labour secretary PC Chaturvedi, saying employees should not be permitted to withdraw from the EPF account to meet expenses such as medical, education and house-building as the objective of the fund is to provide old-age income security. In the letter, he made a strong pitch for investment of EPF money in the market.
“There are other instruments for meeting such needs like medical insurance, house loans and educational loans from banks and financial institutions,” Mr Gopalan wrote in the letter.
Chatterjee said such withdrawals had been allowed right from the inception of the fund to give employees the freedom to use their money when they were in need. “Sometimes loans are not easily available for low-income employees and often they are expensive,” he said. EPFO is in the process of drafting a response to the letter.
Every year, about 60-80 lakh subscribers withdraw roughly . 20,000 crore for various personal reasons, according to EPFO data. This is one reason why the organisation wants to invest in liquid assets.
“If an employee has contributed . 1 lakh in his PF account, he will not accept it if I give him . 90,000 back if the market is down,” Chatterjee said on the proposal to invest PF money in the market.
He said the ministries cannot unilaterally decide on the issue and the matter will have to be placed before the central board of trustees(CBT), the top policy making body of the fund.
“The CBT has representatives of the employers, the employees and the government. A final call has to be taken by the body,” Chatterjee said.
In the letter, the finance ministry argued that it is not correct to say that returns in the national pension scheme, which invests partly in equities, are notional. EPFO is able to avoid the principle of marked-to-market’ only because the yearly flow of contributions and investment returns are more than the outflow on account of payment of retirement benefits and other payments, it said.
The EPFO manages . 3,00,000 crore of funds invested by 4.7 crore subscribers. It invests mainly in government securities and public sector bonds. There are also close to 3,000 tax-exempted private trusts that manage more than . 1,00,000 crore every year.