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In view of the lockdown across the country, the EPF act was amended to include a “no-questions-asked” withdrawal from the EPF on March 28th 2020. Almost two weeks later the NPS has announced a starkly inferior amendment to its partial withdrawal rules once again highlighting its ill-liquid nature.
While discussing if the EPF advance can be invested in equity now, we had pointed out that the EPF had taken the pains to come out with a wonderful FAQ on its “advance to fight the COVID-19 pandemic”.
The EPFO’s advance is for all subscribers whether they are affected by the pandemic or not, whether they are affected by the lockdown or not. No documentation is necessary for the application with a precise enumeration of the procedure.
In stark contrast, the NPS announcement is only for subscribers whose family is diagnosed as COVID-positive and requires a medical certificate and a “formal withdrawal request”.
Unlike the NPS announcement, the finance minister found the EPF advance important enough to announce in her relief package. While the lower-income EPF subscriber base is the reason for this, the conditional advance has been extended to everyone.
This disparity among the two schemes is disturbing and unfair. While the EPFO amended its rules to accommodate the unconditional advance, the NPS merely updated its list allowed critical illnesses.
With even state and central govt employees staring at pay cuts and an increasing NPS corporate subscriber base (who are likely to suffer worse), NPS has failed to deliver when most needed. The argument that a retirement product should be locked so that it will help after retirement will not wash during a crisis like this. Money that is inaccessible at the time of need is essentially worthless.
Partial withdrawals from the Atal Pension Yojana (previously NPS lite) for the majority unorganised sector (who are likely to suffer more) has not been announced.
The Pension Fund Regulatory and Development Authority which took pains to introduce staggered withdrawals and variable asset allocation to counter market risk must also consider a pillar of portfolio management: liquidity and stop taking a holier than thou, “lock-in is good for you” approach. It is not. Not during a lockdown.
Note: I am referring to essential NPS withdrawals made to counter job loss and pay cuts and not for rebalancing into equity.
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M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin
Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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Yes Sir, Totally agree…
As Keynes said, “In the long term, we are all dead”… It is the short term which is always more important, especially just now..