Summary of this article
· EPFO's CBT meeting on October 10-11 may discuss EPF withdrawals from ATM
· Concerns rise about easy access potentially undermining retirement savings
· Critics argue against costly core-banking solutions for EPFO
The next meeting of the Employees' Provident Fund Organisation's (EPFO) central board of trustees (CBT) is scheduled for October 10-11, which may bring some changes to the EPFO's operations. After the CBT meeting earlier this year, Union Labour and Employment Minister Mansukh Mandaviya said that the EPFO 3.0 version would be launched by mid-year, which would have the facility of PF withdrawal from ATMs, EPF integration for UPI transactions, along with other features to make withdrawal easier for EPF subscribers. As the progress on these announcements is not yet known, the developments are expected to be discussed in the upcoming CBT meeting.
Amid the current scenario, the government intends to provide subscribers easy access to their money by introducing some features or advantages before Diwali, per the Times of India report. While it would be convenient for subscribers to withdraw their money from ATMs, it would also mean that easy withdrawal would ultimately defeat the purpose of savings for the long term, such as retirement.
In a way, it is similar to the argument in taxation, where some argue that no income-tax benefits in the new tax regime will discourage people from saving money. Therefore, retirement-focused investment instruments, like the National Pension System (NPS), may not remain attractive as there is no tax saving except for the employer's contribution. However, experts say that tax savings should not be linked to retirement planning. Similarly, EPFO is a retirement savings scheme that can provide financial security to its subscribers only if they remain invested. However, for withdrawal of money for certain approved reasons, some features promised in EPFO's version 3.0, like ATM withdrawal, are now eagerly awaited. Considering the time-consuming dealings with EPFO, starting from its continually slow website, unresponsive customer care, to the complexities involved in advance withdrawals, an ATM withdrawal feature may significantly improve subscribers' experience.
Reportedly, trade unions have apprehension that if withdrawals are allowed through the banking channel, say ATM withdrawal, people may misuse the funds for purposes other than the approved purposes.
At the same time, there are concerns about EPFO's excessive focus on integrating core-banking solution (CBS) based features, which, for it, may not be cost-effective.
The CBS conditions in the EPFO's expression of Interest (EoI) cause exclusion of players, such as TCS, Infosys, Wipro, Finacle, HCL Software, CIPL, AWS, reported PTI, as they don't fulfill the conditions to participate in the initiative.
The EoI seeks solution providers who have managed 100 million deposit accounts in a scheduled commercial bank in India. However, it seems unnecessary because EPFO manages around 30 million members. Unlike banking, subscribers hold one PF account, a consolidated one, and thus, the CBS system, which includes loans, cards, ATM withdrawals, etc., is not required in case of EPFO.
Further, a CBS being a costly system will increase costs and create a long-term technical dependency for EPFO on such a system, while it does not require all the functions of CBS.
According to the report, policymakers should consider other simpler models to modernise EPFO's operations. These models are affordable and transparent and could potentially save a huge amount of maintenance costs involved in using CBS system.
Amid this, it would be interesting to watch the CBT's meeting next month and the development around EPFO's Version 3.0.
