Low retirement savings prompted minimum PF balance rule, says EPFO

The mandatory minimum balance of 25 per cent of the total accumulated funds introduced under the Employees’ Provident Fund Scheme 2026 was prompted by low retirement savings among members, with nearly half of the subscribers left with only ₹10,000-20,000 in their provident fund (PF) accounts at the time of final settlement, the Employees’ Provident Fund Organisation (EPFO) said.

“The need for maintaining a minimum balance in the account of the member was felt because it was observed that about 48.7 per cent of EPF members have PF balance of only between ₹10,000 and ₹20,000 at the time of final settlement. However, an employee earning ₹15,000 per month can accumulate up to ₹14 lakh in a 20-year period, of which the minimum balance of nearly ₹3.5 lakh would accumulate even if 75 per cent was withdrawn. Therefore, this measure alone is expected to ensure seven to 35 times the retirement corpus for nearly 50 per cent of the members,” said EPFO in a response to an email query by Business Standard.

The minimum balance is one of several changes introduced under the EPF Scheme, 2026, which came into force on July 1. It seeks to simplify withdrawals, improve member services and modernise EPFO’s compliance framework.

The new scheme replaces multiple purpose-specific withdrawal provisions with a common framework and allows members to access provident fund savings after completing 12 months of service for categories such as illness, education, marriage and housing.

It also introduces a mandatory minimum balance that members must retain after partial withdrawals.

EPFO said the measure could substantially improve retirement outcomes with nearly half its members expected to see an increase of up to 35 times in their old-age savings.

The 1952 scheme allowed partial withdrawals for specified purposes subject to prescribed conditions but did not require members to retain any minimum retirement corpus. However, the EPF Scheme 2026 mandates that a protected balance remains in members’ accounts even after withdrawals.

Mousami Nagarsenkar, partner at Deloitte India, said the revised framework appeared to strike a balance between improving access to provident fund savings for genuine financial needs and preserving the long-term retirement objective of the EPF.

“The simplified partial withdrawal framework appears largely employee-friendly, providing members with easier and more streamlined access to provident fund savings to meet genuine financial needs. The rationalisation of numerous withdrawal provisions into three overarching categories — essential needs, housing needs, and special circumstances — simplifies the framework. It reduces the administrative complexity that existed under the earlier scheme,” Nagarsenkar said.

However, Debjani Aich, partner at CMS INDUSLAW, cautioned that while the framework seeks to protect retirement savings, it could also reduce liquidity for workers who remain unemployed for extended periods.

“Under the new provisions, an employee can withdraw permissible PF funds of 75 per cent after one month of unemployment, with the remaining 25 per cent held till 12 months of continued unemployment. Similarly, pension withdrawal for employees with less than 10 years of employment is now increased from 2 months to 36 months. These provisions may create liquidity concerns for an employee post employment cessation,” Aich said.