Thursday, 9 September 2010

Proposal for separating PF and pension accounts

It is suggested that PF and Pension Scheme should be separated for greater transparency. Now the Employees Provident fund and Pension scheme is handling by the EPFO (Employees’ Provident Fund Organisation.

When the EPFO started operations in 1952, there was no family pension benefit for subscribers. In 1971, family pension was introduced (EDLI Scheme) wherein the spouse and other family members receive money in case of the subscriber's demise while in service. The Employees Pension Scheme (EPS) introduced in 1995 and getting benefit around 4.5 crore employees.

The committee, headed by former additional Labor Secretary S K Srivastava, has proposed a provident fund-cum-annuity scheme in which two accounts would be maintained for each member a PF account (PFA) and an Annuity Contribution (or pension) Account (ACA).

The expert group report is likely to be discussed on September 15 at the meeting of Central Board of Trustees (CBT), the apex decision making body of EPFO.

Currently, a subscriber of Employees' Provident Fund (EPF) gets only one account, but he is eligible for both provident fund and pension.

However, the report says that although subscribers get defined sum in pension through a fixed formula, the scheme is managed in a non-transparent manner.

The new arrangement, the group said, "would ensure that individual accounting of the members, addressing their long-standing demand of transparency in pension fund accounts and commensurate benefits."

At present, 8.33 per cent of workers' salary subjected to a maximum of Rs. 541 per month (8.33 % of Rs. 6500/- is considered as the maximum limit of salary for Pension Scheme, if the basic salary and D.A is more than Rs. 6500/- , only Rs. 6500/- is considered for EPS) is contributed towards EPS to which government contributes 1.16 per cent of an employees' pay, which adds up to 9.49 per cent of the salary.

It is also suggested that two separate accounts will motivate the subscriber to continue in the pension scheme even if he resigned from one firm and withdraw the P.F money. At present such an employee is tempt to withdraw both pension scheme and E.P.F. This may be avoided if both are in separate accounts and they may continue the pension scheme till superannuation.

My suggestion is that the withdrawal should be easier and the account keeping must be more and more transparent and the subscriber should check and verify their accounts through internet with their own user id and password.  And the procedures for transferring accounts when the employee left a firm and join in another one also should be easy and without more troublesome formalities. Now the withdrawal of P.F and the formalities in EPS are not easy and not subscriber friendly.  Hope that the above mentioned proposal and expected changes may make possible for such easy steps.

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