(This is part 1 of our “Get the most out of your EPF” Series)
Did you know you’re building a secret saving of over Rs. 1 Cr in something called the Employee Provident Fund (EPF)!?
Even if you and your employer contribute the bare minimum of Rs. 1,800 x 2 = Rs. 3,600 a month for 40 working years, compounding consistently at 8% a year, my Excel says that you would have Rs. 1,01,68,025 (that’s the magic of compounding!), assuming a monthly pension payout for 25 years you spend chilling in retirement.
Many of us are contributing more than this. Yet, we usually don’t even bother with tracking our PF balances. Don’t be lazy! Please start today. Here’s how I went about doing it.
The EPF scheme is a form of secret (some would say forced!) savings that most salary earners are covered by. You contribute up to 12% of your basic pay every month, though your employer may choose to cap it to Rs. 1,800 (corresponding to a basic pay of Rs 15,000 per month). Your employer then matches your contribution, so you’re getting at least Rs. 3,600 if your basic pay exceeds Rs 15,000 per month. Most of it goes into the EPF but some of it goes into something called the employee pension scheme (EPS) that has a slightly different payout structure than EPF.
Historically EPF has paid out high interest rates (8.65% last year) Your EPF money will compound quickly and double in just over 8 years, resulting in a solid amount of money at age 58, the current retirement age, which is likely to go up with time, given longer life-spans. It’s also tax free on withdrawal. In order track your EPF monies, you need use the “Unified Member Portal”.
The Unified Member Portal
The Unified Member Portal is like an online account. To sign-in to this website, you need something called a “unique account number” or UAN. If you didn’t have one, your company would’ve created one for you when you joined. It’s 12-digits long e.g. “100023231298”. The UAN is different from the “Member ID” which is like a file number of your PF account with your local PF office and is separated by slashes e.g. “PY/KRP/1310477/165”. Get these from your payroll team or HR person. You have to go to the Unified Member Portal and activate your UAN. It’s a fairly simple process.
Once your UAN is activated, your “Passbook”, showing all the contributions (your and your employer’s), interest credits by the EPF, as well as your current balance, is at another location and is available 6 hours after you register on the Unified Member portal.
Your employment with each company creates a new Member ID, but you should only have one UAN through your working career. You have to transfer the PF balance from the old Member ID to the new one when you switch jobs. This used to be a paper process but can now be triggered electronically through the UAN portal. Initiating this transfer promptly ensures correct tracking of how long you’ve been in the PF system, across multiple employers, which becomes important later on, when you want to withdraw the money.
Why do you need to bother about this
When you resign from a job, and you’re unemployed for two months, you can choose to withdraw the balance (it’s your money after all!). You can also withdraw a part of it as an “advance” for various reasons e.g. buying a home or paying for medical treatment from an illness. This withdrawal used to be a paper-based process, and it used to take months for the money to come to your bank account. Thanks to recent improvements by the EPF, this can now be triggered electronically, without getting your employer’s signature, with money credited to your bank account within a few days, by seeding some Know Your Customer (KYC) information like your Aadhar number, PAN number, and bank account number within the Unified Member Portal.
Yay! Awesome right? Uh not.. (story continued here..)
(This is Part 1 of our “Get the most out of your EPF” Series. Part 2 is here.)