COVID-19: EPFO on the Verge of Facing Income Crisis

The Employees’ Provident Fund Organisation (EPFO) is on the verge of facing an income crisis due to all the PF payment deferments and an increase in withdrawals due to the COVID-19 lockdown. This is going to affect the PF earnings of millions of subscribers for the current financial year.

About a million withdrawal applications have been processed already over the last five weeks. The government announced a non-refundable withdrawal based on specific criteria to ease the situation for people who lost their income during the lockdown. It is predicted that another million applications may come in soon.

Though the withdrawals indicate the hardships the employees are facing during the lockdown, it still counts as the outflow of pension funds. The organisation has settled up to Rs.3,000 crore worth of claims till date and the figure may get doubled soon based on the internal estimates of the pension body.

Also Read: How to use your EPF balance during the COVID-19 crisis

The withdrawal period stands as a significant dent on EPFO’s annual overall collection. The government has deferred establishments’ PF deposit dues of March 2020 until 15 May and the dues of April 2020 until 15 June. The initiative proves to be the cause for the dent much more. However, the government came up with this move to present liquidity for the establishments in the short run and support with cash flow issues. 

The late deposits indicate that the 15% contribution of the corpus into the equity market will not get the expected returns as the market is at its low. The rest of the annual accruals are usually invested in the debt market. 

On the brighter side, the deposit deferment gives a liquidity boost of Rs.25,000 crore to organisations. However, a late deposit of this considerable amount plus the pandemic withdrawal of Rs.6,000 crore accounts for 20% of the annual accrual for the organisation. Late deposits also mean losing on investments leading to lesser returns reducing the interest payout to the subscribers at the end of the day.

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in

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