Editorial | EPFO 3.0: Simpler but still too paternal

• Any move to simplify official processes is welcome, and the EPFO 3.0 tranche of reforms to the Provident Fund (PF), announced last week, does make a few things easier for the 7 crore salaried employees who contribute to it. A digital overhaul of the system is promised, and a simplified withdrawal process for exigencies. The downside, however, is that there will be a longer waiting period for final settlements.

The immediate improvements will come through digital transformation. Real-time online processing and UPI linkage will allow employees to check their balance without paperwork and to make instant withdrawals. Claims will be auto-processed, replacing the old 20-day manual verification cycle. A multilingual self-service portal and an app will display contributions, interest accruals, and claim status in real time.

This is particularly useful for employees of organisations that renege on PF contributions or steal workers’ contributions, an endemic problem in India. Some 1.5 million workers have lodged grievances of this sort, and over 6,000 court cases are pending on matters such as delayed deposits, penal damages, or employer non-compliance. Another good riddance is the requirement of employer attestation for claim verification. Claims will now be authenticated digitally via OTP verification, greatly reducing delays due to non-cooperation by employers.

The most welcome of the reforms is the reduction in the minimum employment duration for a worker to be eligible to make a partial withdrawal. He or she can now do so after 12 months of employment. In the old regime, the wait ranged from five to seven years, depending on the purpose. The single 12-month eligibility rule is especially good for young workers and those in the gig and contract economy.

EPFO has gone in for professional management of its funds. Four asset managers—SBI Mutual Fund, HDFC AMC, UTI AMC, and Aditya Birla Sun Life AMC—will manage its ₹18-lakh-crore debt portfolio. However, this move from bureaucratic control to financial expertise requires vigilant oversight by EPFO to obtain good outcomes for contributors.

It’s the provisions on partial withdrawals that have irksome fine print. On the face of it, simplification was called for. The old system had, for instance, 13 rules for employees wishing to withdraw their money for various purposes. For education and marriage, a worker could make no more than three withdrawals, come rain or shine. That rule has now been replaced, allowing up to 10 withdrawals for education and five for marriage. But then, a totally officious rule has been inserted that at least 25% of the corpus must remain untouched. For employees in urgent financial distress, this restriction can be frustrating. This is exactly the kind of rule that needed to be rid of. What use are funds that cannot be accessed in emergencies? This is not reform; it's the continuance of old thinking that the employee is a child who cannot be trusted to act in his or her best interest.

The worst of the reforms is the extension of the waiting period for final settlements. Full withdrawal after job loss is now permitted only after 12 months of unemployment, and final pension withdrawal after 36 months, up from the earlier two months. In the name of getting better returns, this amounts to a denial of access to one’s own funds and stems from an outdated paternal thinking by the government.