Blockchain Could Be The Elf Easing Your PF Woes
Stakeholders of US retirement funds argue that blockchain could be a more practical way to fix the existing outdated system designed for stable jobs, and the same approach could help EPFO.
The Gist
Blockchain technology may provide a solution to the inefficiencies in retirement fund management.
- Interviews suggest that a blockchain infrastructure could enhance record-keeping and reduce errors.
- A single platform for tracking contributions and employment history could simplify the process.
- This approach aims to ensure funds remain secure and accessible, addressing common complaints faced by EPFO members.
For the salaried class, accumulating a corpus for retirement should be a simple process. Your employer deducts a portion of your monthly pay as a contribution, which you can withdraw when you retire or choose not to work.
But it is anything but simple when it comes to the Employees’ Provident Fund Organisation (EPFO). Most people cannot access the funds when they need them or, in some cases, find themselves locked out of the system.
In July this year, The Core highlighted how millions of people were facing problems in withdrawing their retirement corpus even though EPFO has transitioned to a fully digital claim process.
An EPFO member recounted his entire corpus of Rs 2.19 lakh vanished one day from his passbook about three years ago, and he still has not been able to access it. Another member complained he had been unsuccessfully trying to consolidate his multiple PF accounts for the past five years.
The problem is so big and unmanageable now that an entire industry has come up promising to help you withdraw your own money from a government custodian.
Keeping Up With Changes
The American retirement system, which looks after close to $18 trillion in savings, is facing more or less the same problem because it has failed to keep pace with the changing nature of the way people are employed.
In other words, it was created for a time when working life looked very different. People usually stayed with one employer for long stretches, sometimes their entire career, while employers handled most of the paperwork.
Work no longer looks like that, and job changes are frequent. Earlier, employees paid little attention to their retirement accounts until the time of withdrawal, but now, with every job change, they want to make sure that retirement savings follow them right away.
That’s a fair expectation, but the systems behind retirement accounts in the US, too, have struggled to adjust to these changes.
Retirement records are spread across several recordkeepers and service providers, each maintaining its own version of the same information.
Tasks that should be routine often take weeks to resolve, a situation that will feel familiar to anyone who has dealt with EPFO in India.
But America seems to have found a technology that could solve these issues. And it’s called blockchain.
According to a report published last week by investing.com, Robert Crossley, head of industry advisory services at Franklin Templeton, recently interviewed 52 US retirement plan sponsors, recordkeepers and asset managers, and he argues that an infrastructure powered by blockchain is now increasingly viewed as one of the more realistic ways to remove the inefficiencies from the system once and for all.
A Common Platform
Crossley reiterates that nobody is in favour of ripping out the entire existing system and replacing it with something new.
In fact, he suggests a more practical shift that starts with fixing the issues that cause the most trouble today, starting with how monthly contributions are recorded and employment details are captured.
Right now, there is no common platform to record them, and the industry is looking to create a single record for each worker.
That’s where blockchain-backed systems would be used first. The old systems would still be there, working alongside these new processes.
Once retirement contributions or employment details are recorded on a blockchain-based system, they will always stay there, forever. There would be no cases of your savings disappearing from the system, and one would not need to manually transfer retirement funds from one employer to another. That would happen automatically.
This line of thinking has clear relevance for India.
What EPFO Could Fix
EPFO manages retirement savings for hundreds of millions of workers, and most complaints follow a familiar pattern.
There are technical difficulties in manual transfers after job changes, and employer filings do not always match EPFO records, resulting in reconciliation delays and rejection of withdrawal requests.
A more consistent approach to maintaining records could reduce many of these issues. Instead of keeping multiple versions of the same information, one ledger could track contributions and employment history, ensuring that an employee does not need to notify the EPFO about job changes.
That way, claims could also be processed faster if eligibility were assessed within the system. At the same time, employees would get to see instantly when their contributions are deposited.
In fact, even the National Pension System contribution details could possibly become part of this system despite it being a different body altogether. That will give employees a consolidated view of their entire retirement savings, and they won’t need to log on to different portals.
The lesson coming from the US is quite practical. Focus first on the parts of the system that cause the most frustration, and improve how records are updated and maintained.
For EPFO, getting these basics right could remove many daily problems while leaving the purpose of the system intact.
This series is brought to you in partnership with Algorand.
