The resistance is mainly from younger employees who will be unable to have access to their own savings for crucial needs like buying a house or funding children's education.
The government move to cap the withdrawal of funds from Provident Funds (PF) to 75% from the earlier 100% has met with mixed reactions from the public.
The resistance is mainly from younger employees who will be unable to have access to their own savings for crucial needs like buying a house or funding children's education.
Also, the younger employees feel retirement is still a long time away and do not feel the need to have their hands tied up at the current moment.
Older employees view the move more favourably as it will help them to build the much needed nest egg for their golden years which is either a short term or at best a medium term event for them.
The misgivings among younger employees stems from a myopic vision. Historically, Indians have not planned for the future with the result that most of them are dependent on their off-springs in their old age. Most Indians start thinking of building a post-retirement fund only when they are in their late thirties or forties.
"There is no doubt that the move (cap on withdrawals) is a positive step. If employees withdraw all or a large part of the funds, then they will have nothing left after retirement. Plus, in our country, there is no social security, so we need to accumulate funds for post-retirement necessities,'' points out Sunil Sharma, chief actuary, Kotak Life Insurance.
While mortality rate is improving, medical expenses are also rising. Thus, the importance of a retirement fund cannot be over-emphasised. "The employees will have to find alternate sources to meet their fund requirements,'' say informed sources.
Incidentally, the 75% cap on withdrawals is only the beginning. The Employees Provident Funds Organisation (EPFO) plans to reduce this limit to 50% in the future. Besides, it may also limit the number of withdrawals by a subscriber.
The idea behind the move is to ensure that the PF is used as a retirement fund and not as a savings account. It is widely felt that the in its current avatar, the scheme is being misused. Out of the 1.3 crore annual claims, about 65 lakh claims are for full withdrawal, announced the Central Provident Fund Commissioner K K Jalan, last week.
The notification regarding changes in the PF is expected to be issued before the end of the current month. Earlier, in May this year, the government had announced changes to streamline the exit and withdrawal in the National Pension Scheme (NPS).
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