6 provident fund secrets you did not know

You’ve always thought of it as a mandatory cut in your salary or a safe instrument for
long-term savings, but your provident fund contribution entitles you to several
benefits such as insurance, pension and much more.

1. YOUR EPF ENTITLES YOU TO PENSION TOO

Despite the popularity of the EPF as a saving tool, not many people are enthused by or
even 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. The 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 EPFO’s 5 crore members because of the
measly payouts associated with it. The reason is that since most employers pay PF
only on the mandatory salary cap of 6,500 per month, the pension income for a
majority of workers is abysmally low—at times, less than 1,000 a month.

It is, however, possible to get a higher pension income. “Good employers like Infosys
pay Provident Fund contributions on the entire basic salaries,” says SC Chatterjee, the
Central PF Commissioner. “If your basic pay is 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 of your actual basic pay rather than 6,500,” he adds.

For salaries up to 6,500, the government also chips in with a subsidy of 75. This added
up to 994 crore for all EPF members in 2009-10.

Another way smart employers help boost the pension is by raising the worker’s salary
in the last year of employment. “Suppose I earn 25,000 and contribute 8.33% towards
EPS. However, on my 57th birthday, my employer can raise my salary to 1 lakh.
Since my salary for the last one year will be 1 lakh, I can get a pension of around
50,000. So you can get twice your original salary as pension,” says Chatterjee.
However, for this to happen, the employer should have contributed his share to the
Provident Fund on the actual basic salary, not the mandated limit of 6,500 for the
entire service period. Though this is not fair to other workers who are part of the
pension pool, the pension scheme’s design makes this manipulation possible.
If you don’t want a pension from EPF, you can get the EPS money as a lump sum
along with your PF balance. The benefit will not be linked to the actual contributions
made, but to your last year’s average salary and the number of years in service.
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2. INSURANCE BENEFITS

Besides a monthly stream of income, the EPF subscription entitles you to an insurance
cover on your life through the Employees’ Deposit Linked Insurance (EDLI) scheme.
For this, your organisation contributes 0.5% of your monthly basic pay, capped at
6,500, as premium. Till recently the insurance amount was entirely linked to the
balance in your PF. According to the new rules, your cover amount is higher of the
two: 20 times the average wages of the past 12 months (up to 6,500 per month), that is
1,30,000, or the full amount in your PF account up to 50,000 and 40% of the balance
amount.

:: Private insurer

You get a higher insurance benefit if your employer opts for a private insurer instead
of the employees' deposit linked insurance plan. The EPFO allows this if the benefits
offered by the private insurer are better than that of EDLI. Between 2007-8 and 2009-
10, nearly 1,800 companies opted out of the EDLI.

:: Doubling pension

Say your employer increases your salary from 25,000 to 1 lakh in your last year of
service. Since your last salary is 1 lakh, your pension is likely to be 50,000, double
your original salary.

3. CLAIM INTEREST ON WITHDRAWN AMOUNT

The EPF rate has to be declared at the beginning of every financial year so that all
members withdrawing or retiring 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 often declared and notified much after the end of the financial year. Till the rate
is notified for a particular year, workers’ withdrawals are credited at the previous
year’s rate. For instance, in 2010-11, the Labour Ministry announced a rate of 9.5%,
but it is yet to be notified. So, lakhs of workers, whose PF claims have been settled so
far, have lost out on the 1% increase over last year’s rate of 8.5%.

The Central PF Commissioner admits this is a problem, but has promised that his
department will pay the difference to all the affected members. “If you have

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withdrawn your PF balance during this year while the government hasn’t notified the
PF rate, you can approach your PF office later to pay you the higher interest rate on
the balance,” says Chatterjee.

If, on the other hand, 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.

4. USE EPF TO FUND THE FOLLOWING

Running short of funds to buy a house? Or perhaps your child’s education cost is more
than you had planned for? At such times, it’s easy to fall back on your EPF savings.
While you can’t withdraw the entire corpus, you can do so partially for specific
occasions, such as children’s education, marriage, or for buying property. Find out
when you can avail of this facility, the amount you can withdraw and the conditions
you need to fulfill.

Marriage or education of Self, children or siblings

• You should have completed a minimum of seven years of service.

• The maximum amount you can draw is 50% of your contribution (12% of the basic
salary).

• You can avail of it three times in your working life.

• You will have to submit the wedding invite or a certified copy of the fee payable to
the educational institution.

Medical treatment for Self or family (spouse, children, dependent parents)

• You can avail of it for major surgical operations in a hospital or by those suffering
from TB, leprosy, paralysis, cancer, 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 hospitalisation for one month or more with leave certificate
for that period from your employer. You must also prove that you are not a member of

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

Construction or purchase of house or flat/site or plot for self or spouse or joint

ownership

• You should have completed at least five years of service

• The maximum amount you can avail of is 36 times your wages. To buy a site or plot,
the amount is 24 times your salary.

• Can be avail of it just once during the entire service.

Repay a housing loan for a house in the name of self, spouse or owned jointly

• You should have completed at least 10 years of service.

• You are eligible to withdraw an amount that is up to 36 times your wages.

Alteration/repair of house for house in the name of self, spouse or jointly

• You need a minimum service of five years (10 years for repairs) after the house was
built/bought.

• You can draw up to 12 times the wages, only once.

Damage due to natural calamity

• You can withdraw up to `5,000 or 50% of your contribution to the PF.

• You have to apply within four months of the calamity.

• A certificate of damage from the requisite authority and a calamity declaration by

the state government.

Equipment purchased by physically handicapped employees

• You can draw up to six months' basic salary and dearness allowness, or your share of
PF contribution with interest, or the cost of equipment.

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• You will have to submit a medical certificate.

5. PREMATURE WITHDRAWAL

Under the EPF Act, you cannot withdraw the full amount in your provident fund
account before the age of superannuation. However, if you suffer permanent and
complete disability or are moving abroad to settle, you can withdraw this amount. It is
also possible to do so in case of mass retrenchment by the employer. If, however, you
retire voluntarily before you are 55 years old, you cannot withdraw the full amount.
Under normal circumstances, you can withdraw up to 90% of the fund amount after
you turn 54 or within one year of retirement or superannuation.

6. GRIEVANCES ADDRESSED

The EPF Organisation has a grievance redressal mechanism and it is covered under
the Consumer Protection Act. The process is simple. Log on to http://epfigms.gov.in/
and file your grievance. Since late last year, the EPFO has become a part of the
Centralised Public Grievances Redressal and Monitoring System, which allows you to
register and track status online. It’s a centralised system and complaints are monitored
by the head office. “We reply to all the grievance within 30 days of their receipt. If
someone is not satisfied, he/she can come and meet me,” says Chatterjee.

WHAT IF-YOU RETIRE EARLY, DIE IN HARNESS, CHANGE JOBS...

If you retire before the age of 58

Even if you stop working before reaching the age of superannuation, you can avail of
pension benefits. However, you shouldn’t be less than 50 years of age. Also, the
pension amount will be reduced by 2% for every year. So, if after working for 25
years, you take retirement at 50, your pension amount should be 2,321 per month. But
as you left service eight years before the age of superannuation, your pension will be
reduced by 16%—it will be 1,950.

If you have worked for less than 10 years

If you have completed less than 10 years of service, you can avail of the pension as a
lump sum by opting for the withdrawal benefit. This amount will be provided to you
on the basis of your annual contribution to the pension fund multiplied by the number

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of years that you have completed in service. You will also be entitled to a small
interest on this amount, again depending on the number of years that you have been in
service.

If you die before retiring

If you die while you are employed with an organisation, your pension benefit is not
lost. Your legal heirs will be entitled to a pension, which is a maximum of 1,000 per
month ( 750 for spouse and 250 for two children till they turn 25). However, you
should have put in a minimum of one month’s service to avail of this benefit. Also,
the widow will not be entitled to a pension if she marries again, while dependent
parents will be if the employee has no eligible family or has made no nomination.

If you change jobs

When you change jobs, and shift you PF account, your pension doesn’t get
transferred. You need to apply for a scheme certificate through Form 10C and route it
through the new employer. The certificate has details of the previous employer and
years of pension contribution. “The PF is linked to an individual, but the EPS scheme
is pool-based and can’t be started all over again. So when you change jobs, your
earlier service is not considered and reduces the pension sum,” says Chatterjee.

(Source: Times Of India dated 14-02-2011)