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Provident Fund (PF) is the biggest financial support for the future for employed people working in the private sector. This facility provided by the Employees Provident Fund Organization (EPFO) makes life after retirement secure. Every month, 12% is deducted from your basic salary and deposited in your PF account, and your company also contributes the same amount to your account.
As of now, it takes about 7 working days to withdraw PF advance money online. But the government now EPFO 3.0 Through this, preparations are being made to make this entire system completely digital and hi-tech. After this new change, you will be able to immediately withdraw up to 75% of your PF through ATM or UPI if needed. But amidst this great facility, a big question is arising in the minds of employed people – if 75% of the money is withdrawn while working, then what will be the impact on the pension and insurance benefits received in old age? Let us understand this in very easy and practical language.
Complete mathematics of company’s contribution in PF
When 12% PF is deducted from your salary, the company also contributes 12% to your account. But all this money of the company is not deposited in one place, rather it is divided into three different parts, which you get in different forms in future:
Necessary terms and conditions to get pension from EPS
If you want to get regular monthly pension from EPFO after retirement, then you have to fulfill these basic conditions:
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Minimum 10 years of service: To become eligible for pension, it is mandatory for you to have contributed to EPS for at least 10 years in the organized sector.
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Age Limit: As per general rules, an employee becomes entitled to receive regular pension after completing the age of 58 years.
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Premature Pension Option: If an employee wishes, he can start early pension after completing 50 years of age and even before 58 years of age. However, due to taking pension prematurely, the pension gets reduced by 4% every year.
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Benefits of taking pension late: If you continue working even after completing 58 years and start pension from the age of 60, then you get an increased pension at the rate of 4% per annum (total 8%) in return for these 2 deferred years.
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Rules on employment for less than 10 years: If your total job tenure is less than 10 years, you have the option to withdraw the entire pension amount at once (Full Withdrawal) when you turn 58 years of age.
Understand the direct formula for calculating pension
EPFO uses a fixed formula to decide how much your monthly pension will be:
Monthly Pension = (Average Salary × Pensionable Service) / 70
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Average Salary: This means the sum of your basic salary and dearness allowance (DA). It is calculated based on the last 12 months after you leave your job or retire. As per current rules, the maximum pensionable salary is capped at ₹15,000 per month (resulting in a maximum contribution to EPS of ₹1,250 per month).
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Pensionable Service: The number of years you have worked. Maximum pensionable service is considered to be 35 years.
Will withdrawing 75% PF advance affect pension or insurance?
The simple and clear answer is – absolutely not!
Often people consider EPF and EPS to be the same, whereas these two are completely different schemes. When you withdraw advance money (Partial Withdrawal) from your PF account, that money is deducted from your and the company’s EPF share.
Withdrawal of advance money by you will give you Pension Eligibility Or there is no direct impact on the amount deposited in the EPS account. If you have completed the required service of 10 years, your pension right will be completely protected.
In the proposed EPFO 3.0 system, there is a rule of withdrawing maximum 75% of the total deposited amount, the main idea behind which is that the employees should always have a balance of at least 25%. This will ensure that even in an emergency, the entire retirement fund of the employee is not exhausted prematurely. Along with this, your insurance (EDLI) facilities also continue without any interruption as before.
When is your PF money updated and where does the government invest it?
Many employees complain that why the balance is not visible in their PF passbook immediately after salary deduction. Actually, according to the rules, after deducting PF from your salary, the company has to pay the amount of next month. till 15th It has to be deposited with EPFO. After deposit of money, it takes at least 15 more days for the balance to be updated in the account.
Apart from this, EPFO does not just keep your money locked in the safe, but invests it in safe places to give better interest on it:
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Approximately the total amount of your PF 85% share Invested in completely safe government bonds, treasury bills and public sector guaranteed investment schemes.
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The main objective of this investment is to earn maximum returns on your principal amount by keeping it 100% safe, so that employees can get good interest every year.
