The Employees’ Provident Fund Organisation (EPFO) is a retirement savings scheme that offers a provident fund and pension upon superannuation. However, members can partially withdraw funds for specific requirements, such as medical emergencies or educational expenses, among others. If someone is unemployed for two months, they can withdraw the entire amount. In the case of switching jobs, one can continue the same account without making a withdrawal. Notably, employee provident fund (EPF) interest remains generally higher than the bank fixed deposit interest. Currently, the interest rate is set at 8.25 per cent.
According to the EPFO rules, to transfer your EPF amount from your previous employer to your current one, you need to submit a request to your new employer using Form 13. Fortunately, this process has become much simpler. Now, an EPFO member can directly make an online request for the EPF fund transfer.
However, not many are aware of or simply neglect to complete the formalities to transfer the EPF account when they leave their job or switch to another company.
No Interest In EPF Account After Three Years
According to the EPFO website, “There is no restriction of period for membership. Even after leaving the establishment a person can continue his membership. However, if no contribution is received into a PF account for 3 consecutive years the account shall not earn any interest after 3 years from the stopping of contribution.”
After completion of three years from the date of no contribution to the account, the account becomes inoperative, and interest credit stops.
What Is An Inoperative EPF Account?
According to the EPFO website, “An account is classified as an Inoperative account in which contribution has not been received for 3 years after retirement or permanent migration abroad or in case of death”.
Priyadarshini Mulye, a Sebi-registered investment advisor and certified financial planner, shares an example of a 40-year-old EPF member. She says, “For instance, if the accumulated balance in EPF account is assumed as Rs 1 lakhs, rate of interest as 8.25 per cent (prevailing rate), and monthly contribution as Rs 10,000, the accumulated amount would be around Rs 65.95 lakh if Rs 1 lakh was transferred. However, with the same assumption, the balance would only be Rs 62.03 lakh, if Rs 1 lakh was not transferred.”
In short, when there is no contribution in the EPF account for three years for any reason, including leaving a job, self-employment, etc., it is converted into an inoperative account. Once it becomes inoperative, it stops earning interest.
So, if you think that transferring EPF involves a lot of formalities, and let the balance lie with the previous employers' EPF accounts, you may not only be losing compounding benefits but also the interest itself.
Until now, the inconvenient processes and formalities laden with paperwork discouraged EPF members from transferring their accounts. This is evident with the growing number of inoperative EPF accounts in the last six years. These have grown by 200 per cent to 21,55,387 with Rs 8,505 crore amount lying in these in the financial year 2023-24.
