Rupee Rani: Understanding Provident Fund, how it can be a working woman’s safety net

Consider your PF to be the government’s way of ensuring that salaried individuals will have financial security in their later years.
Rupee Rani: Understanding Provident Fund, how it can be a working woman’s safety net
Rupee Rani: Understanding Provident Fund, how it can be a working woman’s safety net
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If you’re a woman in employment then you are, more likely than not, paying some amount towards your Provident Fund or PF. Consider your PF to be the government’s way of ensuring that salaried individuals, especially those who won’t be getting pensions post retirement, will have some amount of financial security in their later years. 

As women, especially in India, we’ve grown up with the notion that older women are entirely dependent on their husbands and/or children. Very few of us have had independent grandmothers and grand aunts who’ve never had to ask anyone for money, even if they’d had careers when they were young. Contributing to a Provident Fund ensures that you’ve a safety net when you age. 

How do Provident Funds work?

Provident Funds are governed by The Employees Provident Fund And Miscellaneous Provisions Act, 1952.  Every organisation with more than ten employees will mandatorily be required to get registered with the Employee Provident Fund Organisation (EPFO) and deduct PF. 

PF has two components–the employee’s contribution, which is deducted from your salary, and the employer’s contribution, which your employer will pay additionally. Both contributions will go towards your PF account, where the money will accumulate and earn interest (PF accounts earned 8.65% for the Financial Year 2016-17).  

Your contribution is 12% of your basic pay and dearness allowance. Your employer will pay the same 12%, of which 8.33% will go towards the Employee Pension Scheme, and 3.67% towards Provident Fund. The Employee Pension Scheme will pay a pension to your children and your spouse in case of untimely death. Provident Fund is mandatory for all employees whose salary is below Rs 15,000, and there are talks underway to increase the ceiling to Rs 25,000. 

If your salary is over and above the minimum ceiling limit, enrolling into Provident Fund is optional, but I highly recommend that you do enrol. Keep in mind, however, that your employer is not required by law to match your contribution over and above the ceiling limit of Rs 15,000. So even if you want to send half your salary to your PF account, your employer isn’t required by law to pay more than 12% on Rs 15,000. 

Withdrawing your PF, and tax implications

Last year the government announced that you cannot withdraw the money that has collected in your Provident Fund until the age of retirement, i.e, until you’re 58 years old. However, women resigning from work to either get married or due to pregnancy and child birth are exempt from this rule. So if you’d been working and are leaving your job to either move countries, or if you’re quitting to take care of your baby, you have access to your PF account. 

While it is nice to have access to a lump-sum amount, make sure you do have other investments in place before you withdraw your PF because once it’s gone, it’s gone. 

If you’re already married, in service, and with older children, you’re mandated by the age of 58 rule. If you have held your PF account for more than five years, the total amount that you withdraw is exempt from tax, and your contribution to PF is also tax deductible u/s 80C up to Rs.1,50,000/-    

If you’re a home maker, or self-employed, you can contribute towards a Public Provident Fund instead. PPF will earn similar interest, and whose withdrawal exempt from tax. PPF can also be withdrawn at any time.  

Is PF enough? 

Government backed Provident Funds are a very safe investment, and force you to inculcate a savings habit. They will also come in handy if you’re quitting your job post marriage or baby. Keep in mind though, that they’re otherwise very long term investments (you can’t touch them till you’re in your late 50s!). There is no doubt that the lump sum you receive then will be useful, but a solid retirement plan consists of many steps, and contributing to PF is only the first.  

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