EPF - transfer or withdraw.
EPF - Withdraw or transfer?
by , 11-22-2008 at 04:17 PM (46325 Views)
When one hops from one job to other is it better to withdraw or transfer the EPF amount?
MS BANGA spent 22 years at Hindustan Lever Limited before becoming chairman of the company.
Some of us know about how his loyalty reaped him rich dividends in terms of respect, position, salary, etc. But not many know of the benefit that Banga and other long runners like him have garnered, that of an unbroken Employees' Provident Fund.
Your company PF could build you a small fortune over the years. That is, if you let it.
In our fast forward world, no job is for keeps. You and I probably don't know many people who have had the same job for 22 years. Nowadays, even two years in the same company is considered a record. The result, more often than not, is a broken PF.
It is so much easier to withdraw the PF than transfer it to your new employer. Who will fill up Form 13, get it attested and follow up constantly?
We are, after all, the easy-way-out generation. So we withdraw the money.
But let me give you a monetary argument: 28-year old Amar quit his first job after four years for another. When he moved out to his new job, he withdrew his EPF balance (nearly Rs 1 lakh) to buy a car. At the new company, his EPF started at zero.
At 33, he changed his job. This time, too, he withdrew his PF balance, nearly Rs 1.5 lakh (Rs 150,000). Again, he was back to zero.
Thereafter, he did not withdraw his EPF. Whenever he changed jobs, he kept transferring his balance. When Amar retired, his PF was Rs 79 lakh (Rs 7.9 million).
Vineet, Amar's colleague, followed a similar career path, but with one key difference. He didn't withdraw his PF whenever he changed jobs. He transferred it each time. Vineet now has a cash balance of Rs 89 lakh (Rs 8.9 million), a difference of Rs 10.29 lakh (Rs 1.03 million).
While Rs 10 lakh (Rs 1 million), might be small change for MS Banga, it is a big deal for you and me. That little 12 per cent monthly deduction (with an equal contribution from your employer), can make life after retirement a lot sweeter.
Chartered Accountant Jacob Verghese gives another good reason: "You have to pay tax if you withdraw your PF before completing five years. If you transfer it, you can earn more in the long run in terms of returns."
If you are still not convinced, here is the icing on the cake: you stand to receive 24 per cent of the amount standing to your account as pension once you are 50 years old, and full pension at age 58 onwards under the Employees' Pension Scheme.
Remember:
i. If you are employed with an organisation that manages your PF on its own as a private trust, you need to check the rules on transfer or withdrawal of your PF money.
ii. A steady return of 8.5 per cent on your PF account, compounded on an annual basis, is better than most investment options being offered in the market today, so don't withdraw with the intention of
re-investing.
iii. If you really need the money, opt for part withdrawal. You can withdraw up to 90 per cent of the balance in the account for an emergency.
For occasions such as your child's marriage, you can withdraw up to 50 per cent of your own share of balance. But you need to have been a member of EPF for at least five years with a balance of Rs 1,000 in your account.
The future
Those of you citing 'hassle' as an excuse from transferring, can rejoice. A total revamp is on the cards. There will soon be a permanent number issued to employees. This means holding a single PF account all through life, thus eliminating the hassle involved with transfer.
All you need to do is quote this number every time you move to a new organisation Moreover, your account information would be online soon, just a click away.
So what is your excuse?
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