Keeping a track of one’s provident fund (PF) is an important responsibility of all salaried employees. Managed by the Employees’ Provident Fund Organisation (EPFO), provident fund is a long-term savings scheme designed to provide financial security after retirement.
It helps salaried employees build a corpus through monthly contributions from their salaries, which is also matched by the employer. The accumulated amount earns interest over time, encouraging disciplined saving habits.
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This corpus acts as a safety net during emergencies such as unemployment, illness or retirement. Overall, it is a critical financial safety net that offers a dignified lifestyle during old age.
The entire PF related process is automatic for employees as most of its process is completed by the employer. Since, employees are not actively involved in its management, it can be easy to lose track of your PF corpus.
This can have an impact particularly when one switches jobs as it can create difficulties in tracking, transferring or consolidating accounts.
Transferring PF After Job Switching
If a member has multiple PF Member IDs (MIDs) and the balances are not transferred to the latest MID, it is important to consolidate them into the current account.
This is where the Universal Account Number (UAN) becomes essential. UAN acts as a single umbrella for all PF accounts linked to different employers, helping to connect multiple MIDs to one member.
UAN provides services like an updated PF passbook, UAN card, and SMS alerts for contributions. It also allows linking past accounts and enables automatic transfer requests when changing jobs. This ensures better tracking and management of the PF corpus when an employee starts a new job.
What Happens If You Don’t Transfer?
Not transferring provident funds can result in many complications for employees. Firstly, separate accounts can result in employees not qualifying for the threshold years of service neded for many benefits.
For instance, if the total service is more than 5 years then TDS is not charged on PF withdrawal. Without transferring PF with the current employer, employees can lose these benefits and may be liable for additional taxes.
Moreover, without transfer of PF, employees can lose on the benefits of compounding. EPFO currently offers 8.25% annual returns on PF contributions. Separate member IDs can result in lower compounding effect, thus reducing the overall value of the corpus.
Additionally, an EPFO account becomes inoperative when no contributions have been credited to it for 36 consecutive months. Without transferring the PF, employees may end up losing the compounding benefits in their previous accounts after the 3 year period, resulting in lower final corpus value upon retirement.
Clubbing all the PF accounts can also help members qualify for pensionary and insurance benefits of the EPFO. For instance, a service of more than 10 years makes the member eligible for pensionary benefits. That is why transferring PF with the latest employer is necessary to ensure that the past services do not get lapsed.
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Overall, keeping your account updated will ensure seamless access to all EPFO benefits and help you avoid unnecessary paperwork when claiming funds after retirement.
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