The government once again, flip-flopped on its policies, relating to retirement and pension products. There is a clear disconnect between the government’s policies and the concerns of savers. Similar was the flip-flop seen after the budget on the proposal to tax the employees’ provident fund (EPF) corpus on withdrawal. The government faced another backlash for the restrictions on the withdrawal of the EPF corpus before retirement.
The ministry of labour and employment introduced four changes to the EPF withdrawal process effective 10 February 2016. These included, retirement age increased from the current 55 years to 58 years, withdrawal of EPF balance only when you reach the age of 57 years and restriction on withdrawal of employer’s contribution to EPF before 58 years. However, after the backlash of trade unions, the labour secretary, Shankar Agarwal, announced the withdrawal of the 10th February notification.
This withdrawal was announced just hours after labour minister Bandaru Dattatreya had announced the 10th February notification will be deferred to 1st August. Mr Dattatreya had also relaxed the withdrawal norms; now a subscriber can withdraw his or her entire savings for the purpose of housing, treatment of himself/herself or family members suffering from certain illnessess, marriage of children as well as professional education of children. When the finance minister announced the Budget for FY16-17, he stated the need to bring parity among pension products, and proposed taxation of the EPF corpus on withdrawal, similar to the National Pension System. However, this led to a huge backlash and the government had to roll-back the proposal. Will the government take the opinion of financial consumers before introducing policies which affect the life-savings of a person?