A major change to India’s Employees’ Provident Fund (EPF) rules may leave future retirees with lighter wallets, warns TaxBuddy.com founder Sujit Bangar.
Bangar sounded the alarm on LinkedIn, saying the government’s decision to allow near-total EPF withdrawals after just 12 months—excluding a 25% lock-in—marks a shift from long-term financial security to short-term spending.
“Earlier, your PF was locked for good reason,” Bangar wrote. “Most people could touch it only after 5–7 years. Now, after just 12 months, you can withdraw almost everything… That convenience may come at a heavy cost later.”
He emphasized that the EPF’s 8.25% interest, compounded annually and risk-free, works only when left untouched. “₹5 lakh left for 25 years becomes ₹33.22 lakh. Withdraw halfway, and you end up with half,” he noted.
India’s pension assets stand at just 13% of GDP—a stark contrast to Switzerland (160%), the U.S. (142%), and the U.K. (79%). Bangar argues that the 25% lock-in isn’t a restriction but “a safety belt keeping India’s retirement system from collapsing into short-term consumption.”
The easier access, he warns, will alter how people view their retirement funds. “You start seeing PF as your emergency fund, not your retirement pool. But emergencies don’t stop at one—and every withdrawal eats your retirement pool.”
While the move may boost consumption and disposable income today, Bangar believes it risks leaving a generation unprepared for retirement. “India already has low pension coverage and rising life expectancy—easy PF access only widens that gap.”
Globally, pension systems are tightening early withdrawals. “Singapore’s CPF locks money till specific ages. The UK and Australia impose penalties. India’s liberalisation is politically popular but financially fragile,” he said.
His final warning: “You can now withdraw your PF early—but you’ll pay with future compounding. Treat the 25% lock-in as a gift, not a restriction.”
