EPF subscribers can switch to NPS and back New clause in the Act lets an employee move out of EPF and return to it, but treats the person as a new subscriber.

Proposal in budget and in pipeline:

EPFO manages a pension corpus of more than Rs.6 trillion and has at least 42 million active subscribers. Photo: Mint New Delhi: Subscribers of employees provident fund (EPF) will be allowed to switch to the National Pension System (NPS) and back if they wish, according to a proposed change to India’s retirement fund laws. The budget had made a case for encouraging more employees to join NPS, raising doubts in sections of the labour ministry that this could be the beginning of dismantling of the Employees’ Provident Fund Organisation (EPFO), which manages the pension fund. While EPF invests solely in safe but low-yielding government securities, NPS subscribers can select between government securities, equities or corporate debt. While EPF returns are tax-free, NPS withdrawals are taxable. The labour ministry has now proposed to insert a new clause in the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 after consulting EFPO, which manages a pension corpus of more than Rs.6 trillion and has at least 42 million active subscribers. The new clause 16AB reads, “The employees of the establishments to whom the Act applies shall have an option for joining the New Pension Scheme (sic) of the Pension Fund Regulatory and Development Authority (PFRDA), by submitting application to the Commissioner in such form and in such manner as may be specified in the Scheme.” Once a subscriber moves to NPS, which comes under PFRDA, the EPF Act will no longer apply to such employees, or a class of employees, the ministry explained in a new section it added to the law. Mint has reviewed a copy of the proposed amendments in this regard. The ministry sets out the conditions under which an employee can return to EPF: “An employee who has joined the New Pension Scheme (sic) may join the Scheme framed under this Act, by an application to the (provident fund) commissioner. Provided that he/she will be treated as a new entrant to the Schemes framed under the Act,” reads the new addition to the Act. This means you can move out of EPF and return to it, but you will be treated as a new EPF subscriber. Once an employee chooses to join NPS, his PF and pension corpuses will be transferred to his bank account and it will be treated as a complete withdrawal. This means the employee’s return to EPFO will make the person a new subscriber and he/she will need to fulfil the required number of years of contribution to be eligible to get pension from EPFO, explained a government official who declined to be named. For eligibility of pension, a subscriber should have 10 years of contribution in employees’ pension scheme. The official said details will be fine-tuned after a meeting of EPFO’s central board of trustees on 31 March. The official added that the labour ministry has also called a meeting of representatives of the government, industry and workers. Michael Dias, secretary of the Employers’ Association in Delhi, said workers have a choice on where to park retirement savings. Dias says he believes NPS is a better product than EPF. The labour ministry, he said, should not devise ways to scuttle the budget proposal and take a decision only after due consultation with all stakeholders. D.L. Sachdeva, national secretary of the All India Trade Union Congress, said that poor workers don’t know much about investments and giving an option of NPS will only do more harm than good, as companies may persuade them to migrate from EPF to NPS in the name of higher take-home salary. Sachdeva said labour unions are not in favour of NPS as it brings risk to retirement savings, which are exposed to stock market fluctuations.