Reference Text

It is disturbing that recent restrictions on early withdrawals from the Employees' Provident Fund should stir up angry passions to such an extent that worker protests turned violent in Bengaluru. After this incident, the labour ministry announced a rollback of the rules it had introduced on February 10. While the ministry may be right in its assessment that the protests were sparked by a misinformation campaign, it needs to shoulder some blame for poor communication. In the last three years, there have been one too many changes in the rules governing the EPF. Each of these changes has caused so much confusion and has been preceded by so little public debate that it is not surprising that employees' unions should perceive them as attempts to confiscate the hard-earned savings of workers. What has attracted the ire of workers' unions now is the February notification by the Centre imposing new restrictions on premature withdrawals from the EPF, by workers who are between jobs. Earlier rules allowed employees to claim their entire accumulated balance in the EPF before the age of 54 if they remained unemployed for two consecutive months. The new rules state that they can cash out their own contributions, but the employer's contribution and the interest on it would be locked in until the age of 57. Nor was there any official notification on whether the locked-in sums would earn any interest. The labour ministry has tried to rationalise this by stating that the rules were meant to ensure that every worker has a reasonable retirement corpus, and argued that the bar on withdrawals only applied to 3.67 per cent of the employer's contribution (the other 8.33 per cent goes into a pension scheme). But this ignores the very real hardships faced by low-income workers. While financial theorists ask investors to neatly set aside separate portfolios towards emergencies, health and retirement, those with subsistence-level earnings can hardly afford such luxuries. For an unemployed worker, clear present needs outweigh notional future security. It is also specious to argue that the residual 3.67 per cent can help anyone secure their retirement. Indeed it is ironic that while the EPF is trying to prevent unemployed workers from cashing out, workers who are still in service are allowed early withdrawals if they need money for 'approved' purposes such as marriage, acquiring a home, or treating illness. Instead of taking such a paternalistic approach to employee savings, the labour ministry should rework the EPF rules to make the fund more flexible and attractive to investors. Allowing employees to vary their annual contributions based on savings, transparency about the fund's costs, and investment strategy, and admitting re-entry into the scheme after premature exit, will help