Oppn slams EPFO overhaul as 'cruelty', experts warn of social security erosion

The Modi government’s recent overhaul of the Employees’ Provident Fund Organisation (EPFO) rules has triggered a storm of criticism from Opposition parties and financial experts alike, who warn that the move punishes India’s salaried class for economic mismanagement and risks dismantling one of the country’s last dependable social security pillars.

Opposition leaders have called the new rules “draconian” and “cruel”, urging labour and employment minister Mansukh Mandaviya to withdraw them immediately. Congress MP Manickam Tagore accused the government of “punishing pensioners and job-losers for needing their own savings”.

“Under the new EPFO decisions, you can withdraw PF only after 12 months of unemployment instead of two. Pension can be withdrawn only after 36 months. Twenty-five per cent of your own EPF will be locked forever,” Tagore said on X, calling it “robbery” of workers’ savings. He urged Prime Minister Narendra Modi to intervene and “stop bureaucratic cruelty destroying the dignity of India’s working class”.

Trinamool Congress MP Saket Gokhale went further, branding the changes “open theft of salaried people’s own money”. “Imagine a person who loses their job but still has bills and EMIs to pay. The Modi government will not allow them to withdraw their own money for a full year,” he said. “Even after that, they can only access 75 per cent — if they remain unemployed. This is not reform; it is punishment.”

Congress spokesperson Shama Mohamed echoed the outrage, describing the rules as “looting the hard-earned money of the salaried middle class”. “The Modi government should immediately roll back these rules,” she said.

The changes, approved at a meeting of the EPFO’s Central Board of Trustees chaired by Mandaviya, lengthen the waiting period for final provident fund settlements from two months to twelve months of continuous unemployment, and for pension withdrawals from two months to thirty-six months. A new rule also mandates that 25 per cent of each member’s contributions remain untouched as a “minimum balance” until retirement.

A senior labour ministry official defended the revisions as necessary to “ensure continuity of social security benefits” for formal sector workers. He explained that many employees leave the EPFO system after just two months of unemployment, forfeiting long-term benefits such as pension eligibility, which requires at least 10 years of combined service. The new framework, he said, encourages workers to preserve their accounts rather than exit prematurely.

However, critics argue that the so-called rationalisation masks a shift in the EPFO’s founding philosophy — from a long-term social safety net to a liquidity tool shaped by administrative convenience and populist optics.

Earlier this month, the EPFO had announced a sweeping “simplification” of its withdrawal framework, consolidating 13 categories into three broad groups covering essential needs, housing, and special circumstances. On paper, this move aimed to streamline access; in practice, it expanded the scope for partial withdrawals, permitting up to ten withdrawals for education and five for marriage during service.

Experts warn that such frequent access turns the provident fund into a quasi-savings account rather than a retirement corpus. “This is deeply concerning and regressive,” said K.E. Raghunathan, former member of the Central Board of Trustees. “These decisions could dismantle the safety net India’s salaried class relies on.” He also questioned the silence of trade unions that have endorsed the measures, calling their support “short-term populism at the cost of enduring worker welfare”.

The 25 per cent minimum balance rule, presented as a safeguard against over-withdrawal, effectively allows employees to draw down three-quarters of their accumulated savings at any point. While the government maintains this ensures a “sufficient retirement corpus”, financial planners caution that such accessibility can erode the benefits of compounding and encourage impulsive withdrawals, particularly in times of financial stress.

“When access becomes easier, withdrawals surge,” said a Mumbai-based pension consultant. “Over time, that behavioural shift can leave workers with dangerously low savings by retirement.”

The government’s digital revamp — the EPFO 3.0 transformation plan — promises cloud-native systems, automated settlements, and greater transparency. Yet, concerns remain over execution. The EPFO has long struggled with technological lapses, grievance-handling delays, and data mismatches, and a hasty digital transition could exacerbate rather than resolve these inefficiencies.

Another contentious move is the Vishwas Scheme, which reduces penal damages for delayed PF payments from up to 25 per cent to a flat 1 per cent per month. The scheme, aimed at easing litigation and clearing backlog cases, has been read by critics as a soft signal to defaulting employers. “It’s business-friendly, yes,” a former EPFO commissioner observed, “but it weakens deterrence for those who routinely delay deposits.”

Together, these reforms have sparked a wider debate about the purpose and future of India’s provident fund system. The EPFO, established to enforce discipline in retirement savings, appears to be drifting towards flexibility at the expense of security.

Opposition parties argue that the new rules amount to penalising workers for unemployment created by the government’s economic policies. “These are the signs of a panicked government trying to prevent a run on the EPFO,” said Gokhale, suggesting that the reforms were a response to rising joblessness.

The government, however, maintains that the changes are part of a broader modernisation effort aimed at improving user convenience and long-term inclusion. Officials insist that by retaining members in the system longer, the reforms will strengthen pension coverage and reduce premature withdrawals that weaken the fund’s stability.

But as critics point out, simplification and empowerment are only meaningful if they serve the core purpose of social security. The provident fund was never meant to function as a bank account or emergency wallet; its strength lies in disciplined accumulation.

“Unless backed by financial literacy and strong corpus-preservation norms,” warned Raghunathan, “these measures risk turning India’s social security pillar into a temporary liquidity cushion — convenient today, crippling tomorrow.”

With agency inputs