Transforming EPFO: Can it pivot into a user-friendly organisation?

With the number of rejections rising to almost a third of claims, the government is taking steps to radically reform the country's largest social security platform in order to ease payouts of benefits

In February 2024, KP Sivaraman, a retired employee and cancer patient, committed suicide in the Kochi office of the Employees Provident Fund Organisation (EPFO) after his claim for final settlement kept on getting rejected for nine years because of a mismatch in the identification details in his provident fund records and his official documents. 

With nearly 78 million contributing members and an investible corpus of about Rs 25 trillion, EPFO is one of the largest social security organisations in the world. However, it has been in recent times struggling to provide efficient customer service. With the launch of the three new employment linked incentive (ELI) schemes in the coming months, the EPFO is slated to have more than 100 million contributing members, making it imperative to reform the social security behemoth. 

Teething issues

  Settling claims has often been a cumbersome process under the EPFO, with members of the social security organisation often complaining about the long time taken to process claims. 

Official data shows that out of the three PF claim categories — final settlement, transfer and withdrawal — the rejection rate has sharply increased for the final settlement of PF claims over the last five years. Data show that out of the total 7.15 million claims received for final PF settlement in FY24, 30.3 per cent (2.17 million) were rejected, while 4.76 million were settled and 228,000 remained as closing balance. This has been sharply higher than the rejection rate seen in pre-pandemic FY19, when it stood at 18.2 per cent. 

Deepak Jaiswal, President, National Front of Indian Trade Unions (NFITU) and a member of the EPFO’s central board of trustees (CBT) says that the claim rejection has increased sharply after workers started to submit their applications online. 

“Earlier, somebody in the EPFO’s helpdesk would correct it. The system has become such that after a few days, claims are returned citing discrepancies. Many of these discrepancies are nowadays on account of just an alphabet in the name of the member not matching, or different details in Aadhaar. All of this creates a lot of problems for the EPF subscribers,” he adds. 

EPFO officials believe the issue will be addressed substantially with the proposed implementation of a centralised pension payment system (CPPS) from January. CPPS is expected to streamline pension disbursement across the country as it will allow nearly 8 million pensioners to access their pension from any bank or branch nationwide, expediting claim processing and eliminating the need for bank visits for verifications. 

“The existing infrastructure has attained its end of life cycle, which was developed way back in 2009. The new IT infrastructure is being built which will integrate both the front end and back end. The hardware is also being built afresh,” an official adds.  

 

EPFO 3.0

  Earlier last month, speaking in Parliament, Union Labour Minister Mansukh Mandaviya said EPFO was working to build a robust platform that will enable users to draw their money without any hassles. 

“We are working to create a redressal system akin to the banking system. By March next year, we will be able to launch EPFO 3.0 through which we will be able to solve almost all the user queries,” he added. 

Sheo Prasad Tiwari, National General Secretary, Trade Union Coordination Centre (TUCC) and a member of the CBT, says the biggest advantage of the EPFO 3.0 would be the scalability. The new Code on Social Security speaks of providing social security coverage to the unorganised and gig workers as well. 

“As and when these workers come under the net of EPFO, the system has to be robust and capable of taking that extra load. This new version of EPFO makes sure that the IT infrastructure is capable enough to handle the load. The KYC process will also be simplified and it is estimated that claim rejections may fall by half due to rollout of this new system,” he adds. 

Besides, the retirement fund body is also working towards rolling out a facility that will allow members to withdraw funds from their corpus, subject to a certain ceiling through an ATM card, thus doing away with the need to file claims. 

“The ATM card feature for withdrawal of funds from the EPFO corpus is expected to be rolled out after the completion of the IT upgrade. The idea is that for at least small amounts, say up to Rs 10,000, why should any approval be sought by people to withdraw their own money? We are in talks with several banks to have this facility. Though it doesn’t imply that people can walk in and withdraw any amount, as the purpose of EPFO is to provide social security during old age or in adverse situations,” the official says.  

On similar lines, the EPFO plans to make pension contributions flexible, which will allow employees to contribute more or less than the existing 12 per cent ceiling towards the Employees’ Pension Scheme (EPS). 

“Prudent investment of the corpus is essential for enhanced returns to the members, and it is our endeavour to provide a high interest rate. Last month, CBT approved the redemption policy for ETF investments in CPSE and Bharat 22 along with approving the guidelines for investment in public sector undertaking (PSU) sponsored Infrastructure Investment Trusts (InvITs). EPFO 3.0 will have thrust in this direction,” adds the senior official.   

  Compliance challenges

  Members of the Central Board of Trustees (CBT) — the apex decision making body of the EPFO — point to the lack of compliance by the establishments in implementing the relevant social security Acts.  

Harbhajan Sidhu, General Secretary, Hind Mazdoor Sabha and a member of the CBT, says the enforcement machinery of the retirement fund body is not enforcing the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) in full earnest.  

“The Act (also called the EPF Act) applies to every establishment with more than 20 or more workers, with some exemptions. Despite the rapid industrialisation and the workforce growing rapidly in industrial clusters, growth in coverage has not been commensurate. For example, the EPFO covers only 40,000 establishments in Delhi NCR, whereas data sources point to operation of nearly a million establishments in the region. This deprives thousands of workers from getting any social security benefit,” he adds.  

Echoing these views, K R Shyam Sundar, adjunct professor, Management Development Institute (MDI), says contract workers who constitute almost half of the workforce in the country are shortchanged by their employers. “One is the issue of contract workers, and here trade union members who are in the CBT could have done a better job by pressuring the enforcement machinery of EPFO in getting the contract workers registered. Besides, there is the issue of the capacity of the EPFO itself to deliver services to the projected 100 million members. It has been some time when a functional audit of the organisation was done, which will reveal the capabilities of the organisation itself,” he adds.  

R Karumalyan, National Secretary, Centre for Indian Trade Union (CITU) and a member of the CBT, points to the issue of minimum pension and the wage cap set by the EPFO more than a decade ago. “In a lot of states today, minimum wages have been fixed at an amount higher than the wage cap of Rs 15,000 set by the EPFO. This in effect restricts the coverage and leaves millions of workers outside the ambit of EPFO. Similarly, close to 4 million people receive a monthly pension of 

Rs 1,000, which is not adequate given the inflation. It needs to be raised,” he adds.  

EPFO must look no further than its mission statement for inspiration: “Our mission is to extend the reach and quality of publicly managed old-age income security programmes through consistent and ever-improving standards of compliance and benefit delivery in a manner that wins the approval and confidence of members in our methods, fairness, honesty and integrity, thereby contributing to the economic and social well-being of members.”   

EPFO 3.0

 

*  A redressal system akin to the banking system

 

*  KYC process to be simplified.It is estimated that claim rejections may fall by half 

 

*  New facility to allow members to withdraw funds from their corpus, akin to an ATM card

 

*  IT infra to be revamped keeping in mind the growing membership base to produce scalable solutions