EPFO manages the Employee Provident Fund (EPF) and you can invest in the EPF to save for retirement. Now, the scheme is undergoing some changes. As a salaried person, you need to understand these changes to know how it will impact your savings.
1. Withdrawal of PF on unemployment
The previous rule allowed employees to withdraw their EPF balance completely, if they were unemployed for over two months. EPFO has now changed the rule for withdrawal in case of unemployment. As per the new rule, a user can withdraw 75% of EPF amount on being unemployed for a month and the remaining 25% can be withdrawn on being unemployed for 2 months, if he wishes to close the account.
The main intention of allowing an unemployed member to withdraw 75% of PF balance is to provide him coverage during financial emergencies without hurting the retirement fund. The new rules also allow the user to continue with the same EPF account after he joins a new job.
2. Equity exposure
Earlier, EPF contribution by employees was invested only in the fixed income instruments like corporate bonds and government securities. Three years ago, EPFO started investing a part of the EPF contribution in the stock market. It invested a nominal 5% of the incremental corpus in exchange-traded funds (ETFs) and it was later increased to 15%.
In the future, subscribers will be given an option to increase or decrease their exposure to equity markets. This option will help to plan for retirement. If you are still young and there are many years for retirement, you can increase your investment in equities for the long-term. In case you are close to retirement, you can move completely to fixed income.
See Also: How To Check EPF Balance?
3. Changes to EPS
You may be aware of how EPF gets deducted from your salary. You should contribute 12% of your basic salary towards your EPF and your employer also contributes the same amount. Out of your employer's 12% share, 8.33% will be contributed towards EPS. As of now an employee with a minimum salary of Rs 15,000 a month is eligible for EPS and the labor ministry may enhance this to Rs 21,000. Currently, the minimum guaranteed pension of Rs 1,000 per month will be received after retirement. The EPFO is planning to increase it to Rs 2,000 per month.
4. Higher pay, more contribution
As per reports, the government will place a cap on allowances to employees at 50% of the basic pay. The main intention of this proposal is to make basic pay as a major component of the employee’s salary. Usually, companies keep their basic pay low to save costs on their share to the PF.
If the basic pay is increased, the amount contributed towards EPF will also increase. This will help you save more for retirement.
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