Unclaimed PF deposits to fund scheme for the elderly

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Yash Malani, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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Savings that remain unclaimed in Employees’ Provident Fund and Public Provident Fund accounts and other small savings schemes for seven years will be diverted to finance a Senior Citizens’ Welfare Fund, according to new rules notified by the Finance Ministry.Budget 2015 has said that it will use unclaimed money to subsidize the social security schemes it has announced in this budget for the benefit of senior citizens.

Typically, money in the EPF corpus keeps earning interest as per the interest rate declared every year. This interest rate is declared every year. For the year 2014-15, the EPF interest rate declared is 8.75%. An account is deemed inoperative if it doesn’t receive any contribution for three years. Your EPF account keeps earning its interest for three years even if there’s no contribution in it. After three years, the account is deemed as inoperative.

As per market estimates, close to Rs.27,000 crore is lying in inoperative accounts. Of this, Budget 2015 has said that close to Rs.6,000 crore worth of deposits is lying as unclaimed.

Trustees of the Employees’ Provident Fund Organisation termed the move as unconstitutional. Unclaimed deposits of PF contributors cannot be diverted for any other purposes, as per the EPF Scheme, 1952.

According to the rules, the concerned government office “shall try to contact” every account holder of the unclaimed deposits through written notice, e-mail or telephone at least two times in 60 days before transferring the amount to the Senior Citizens’ Welfare Fund.The EPF board had, earlier this week, rolled back a 2011 decision to stop interest credits on inoperative PF accounts. Now, while such accounts will continue to get interest credits, the entire balance could be lost to the Senior Citizens’ Fund after seven years of inactivity, though it’s not clear how this will be implemented.

Provident Fund — EPF and PPF — is the private property of the contributor and the manager. The Government of India plays only the role of a trustee.  If no claim is made for more than seven years, does not mean that government can hijack the money. Though it’s best to claim your unclaimed EPF and PPF money as soon as you can, it could be some time before the government gets its hands on the corpuses. Using the unclaimed money will need an amendment to the EPF Act. Also one of the reasons why EPFO has been able to shore up returns is because of this large pool of EPF money. With this gone, it will be a big blow to EPF.

References:

http://www.thehindu.com/news/national/unclaimed-pf-deposits-to-fund-scheme-for-the-elderly/article8427306.ece

http://www.livemint.com/Money/Yv7Y5s62AW8iCKvt4WbCtM/Inoperative-PF-accounts-to-subsidize-senior-citizen-schemes.html

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