Govt to allow EPF withdrawals to cover down payments on home loans
Govt plans to amend EPF scheme to allow EPFO subscribers to withdraw funds for also paying EMIs on home loans. After buying into a fund comprising public sector stocks to aid the government's asset sale plan, India's retirement savings manager will now help push its "housing for all" initiative.
The labour ministry, which controls the Employees' Provident Fund Organisation (EPFO), informed the Rajya Sabha on Wednesday that it intends to amend the law to allow subscribers to withdraw up to 90% of their savings to buy or build homes. EPFO subscribers will also be able to pay their home loan EMIs (equated monthly instalments) using regular EPF accumulations.
The plan comes with a rider: for availing of the benefit, at least 10 EPF subscribers need to form a group to buy houses from a builder or construct homes on their own. Under the new proposed provision in the EPF scheme, EPFO subscribers would have to form a cooperative society with at least 10 members for availing the facility. "A member of Employees' Provident Fund being a member of a co-operative society or a housing society having at least 10 members of EPF, can withdraw up to 90% from the fund for purchase of dwelling house/flat or construction of dwelling house/acquisition of site," labour minister Bandaru Dattatreya told the Rajya Sabha in a written reply.
The minister said the central government has "already taken a decision for modification in the Employees' Provident Funds (EPF) Scheme, 1952" for effecting the change.
EPFO has some 37.6 million active subscribers and manages a corpus of over Rs8.5 trillion.
In January, it invested Rs2,800 crore in the central public sector enterprises exchange traded fund (CPSE-ETF), comprising stock in 10 state-owned companies, to help in the government's divestment plan. It marked the first time that the EPFO participated in the government's divestment plans.
"As a pension fund with a huge corpus, we need to participate actively in bigger government schemes with public interest. First, we participated in the disinvestment plan by investing a sizable portion in CPSE ETF and now through this, we will lend a helping hand for the housing for all effort of the central government," said a senior EPFO official, who declined to be named.
To be sure, EPFO has been discussing the proposal to allow subscribers to use their retirement savings to pay for homes for over four years. It has refrained from taking a final call on grounds that putting its corpus to such use wasn't its core strength.
There are reservations, still. For one, allowing the withdrawal of 90% of retirement savings to pay for a home may be feasible, but allowing the payment of monthly EMIs using EPF contributions will change the structure of the EPFO as a retirement fund body.
"The central board of EPFO has not yet given a go-ahead to the scheme but the ministry has an intention. When it comes to housing, none of the members will oppose the move but the question is, will EPFO remain a retirement fund body after this? EPFO and labour ministry may have to give some explanation," said D.L. Sachdeva, a national secretary of the All India Trade Union Congress and member of the EPFO's apex central board of trustees (CBT).
The CBT is meeting on 30 March and this is expected to take a final decision.
How will the EMI payments work? After a subscriber takes a loan, if his monthly EMI is Rs20,000 and his/her monthly EPF contribution is Rs10,000, the EPFO will pay Rs10,000 to the bank or housing finance company after receiving the money from the subscriber's employer. The subscriber has to pay the remainder of the payment, another labour ministry official explained on condition of anonymity.
The EPFO official cited above said that diversifying from its core area of overseeing retirement savings had been discussed in a series of meetings. The authorities thought that "buying a house is an emotional and lifelong investment" and allowing a subscriber to buy a home from his/her EPF savings "will not compromise with the ethos of the retirement fund body".
"Housing for all is a central scheme and EPFO lending a hand of support is seen as a positive step," said the official.
In June 2015, the Union cabinet had approved a scheme that aims to provide housing for all by 2022.
The housing for all scheme aims to cover urban areas consisting of 4,041 statutory towns and cities. "We have already got the plan vetted by the law ministry," the EPFO official said.
Sachdeva, however, was skeptical about the success of the scheme.
"Nearly 70% of the EPF subscribers get a salary of less than Rs15,000. And how much money will they have in EPF savings to pay for a house? The monthly contribution (24%--12% each by employer and employee) of these workers is very low and may not be sufficient to pay even a quarter of the EMI of a meagre Rs20 lakh home loan," he added.