Urgent need for EPFO reform

Employees’ Provident Fund Organisation (EPFO) under the Ministry of Labour and Employment is an important framework for formalizing India’s labour market. With nearly 300 million members, it is one of the world’s largest social security providers. The recent Union Budget announcements gave EPFO the additional responsibility of augmenting employment/apprenticeship programmes. Thus, it is essential that EPFO becomes an efficient platform. This article explores the improvements needed in the platform as part of our series on process reforms.

Under current EPFO rules, employees with monthly wages up to Rs.15,000 mandatorily give in a 12% wage contribution and a matching share is given by the employer (the central government also adds 1%); higher wage earners can participate voluntarily. The funds can be withdrawn at maturity upon retirement or partially withdrawn in case of contingencies.

It has been known for decades, however, that the EPFO system is very inefficient. Thanks to digitalization and nation-wide consolidation of data since 2017, the true scale of the problem has become apparent. For instance, 28% of the withdrawal claims by subscribers were rejected in 2022-23. In some categories such as pension withdrawal and insurance, the rejection rate is 44% and 39% respectively! This is clearly unacceptable.

Given the inefficiency in processing claims, the cumulative unclaimed Provident Fund (PF) amount has been reported at more than Rs.58,000 crore in 2022. In 2023-24, the amount in inoperative accounts stood at Rs.8,505 crore. With such high claim rejections, it should be no surprise that low-income workers often see EPF as a tax rather than a safety-net/saving. Moreover, this also hinders formalization.

With digitization, we can track that claim requests on the EPFO portal have multiplied by 3.5 times in the last five years, i.e., from 1.73 crore in 2017-18 to 5.87 crore in 2022-23. As a result, grievances have also gone up. The Employees’ Provident Fund Online Grievance Management System (EPFiGMS) portal received 14,23,391 grievances in 2022-23 of which most pertained to KYC issues with the PF office (15.5%), final PF withdrawals (12.6%) and non-transfer of accumulations (11.8%).

One of the most common reasons for rejections was discrepancies in member details such as name, date of joining and leaving an organization, bank account particulars, signature, and date of birth in EPFO records as well as other databases such as Aadhar, bank account, and PAN number. Another is the ineligibility of claims applications by members who do not adhere to the EPFO’s rules and criteria.

Many of these issues are directly due to inadequate information made available to members. EPFO’s website is not user-friendly since some important links are dormant; circulars are not grouped thematically making it difficult to track changes in rules; documentation requirements are often unclear. Moreover, the central database is not smoothly linked to the 123 regional databases. Interchanging data across these databases creates pressure on the presently obsolete system and slows down servers.

Since EPFO’s subscriber base is now three times of that in 2012 (81 million), the system is no longer a marginal facility. Moreover, its role is being expanded for apprenticeship schemes, and its database is used for unforeseen exigencies. During the Covid-19 pandemic, for instance, EPFO provided support to members through advance withdrawals of up to 75% of the total PF contribution or the sum of three months’ wages. This implies that the system needs to live up to this enlarged mandate.

The good news is that some effort is already underway to bring down claim rejection and to smoothen the subscriber experience. For instance, from April 2024, the members’ PF accounts can be automatically transferred in case of switching jobs. In May, completion of the KYC process online on the e-SEWA portal has been allowed. To address tedious documentation, mandatory requirements for uploading the image of cheques or passbook has been relaxed. Meanwhile, around 1,500 Social Security Assistants have been recruited at the regional level to close the manpower shortage.

Notwithstanding these efforts, the inefficiencies of EPFO platform needs to solve several other problems. Some of them include streamlining multiple EPF accounts into one Universal Account Number, introducing eligibility checks and pre-validation for claims, remarks in the portal citing reasons for rejection and required corrective action, launching centralized system to consolidate decentralized databases, digitalization of the pension payment system irrespective of the bank and branch location, and so on.

Given the enhanced mandate of EPFO in the government’s overall economic strategy, the platform needs to urgently upgrade itself. As mentioned, some efforts are already under way but it now needs to be done in mission-mode as the load is likely to grow exponentially in the next few years.

(Sanyal is Member, and Chauhan is Young Professional, Economic Advisory Council to the Prime Minister)