Source: ET
Context:
The Employees’ Provident Fund Organisation (EPFO) has introduced reforms to allow greater access to retirement savings, alongside an RBI review highlighting the need for sustainable fund management.
Key Reforms:
- Premature Withdrawal: Members can withdraw up to 75% of PF for essential needs (illness, education, marriage), housing, and special circumstances; 25% retained for prudence.
- Frequency: Withdrawals for education – 10 times, marriage – 5 times. Minimum membership: 12 months.
- Unemployment Clause: Retained 25% can be accessed after 1 year of no pay.
Fund Management Concerns:
- Current PF payouts (>8%) exceed returns on 10-year government bonds (~7%).
- Shortfall partly covered by selling equities and other capital assets, raising sustainability concerns.
RBI Recommendations:
- Conduct actuarial assessment of liabilities vs. assets for each scheme.
- Employ professional and sophisticated asset management.
- Split regulatory and fund management roles to avoid conflicts.
- Consider raising equity allocation cap beyond 15% to sustain payouts.
- Maintain transparency and risk-reward alignment.
