Context
The Union Government is developing a Universal Pension Scheme under the EPFO 3.0 reforms to expand retirement security through a flexible contributory pension system for organised, informal, and gig workers.
Need for the Universal Pension Scheme
India’s pension system is fragmented, with different retirement schemes serving different sections of the workforce. While organised sector employees are covered under the Employees’ Provident Fund Organisation (EPFO) and the Employees’ Pension Scheme (EPS), a large proportion of informal and gig workers remains outside the formal pension network.
According to the Periodic Labour Force Survey (PLFS), nearly 90% of India’s workforce is employed in the informal sector. The Code on Social Security, 2020 expanded the scope of social security by recognising gig and platform workers, highlighting the need for a more inclusive pension system. To address this gap, the Government has initiated EPFO 3.0 reforms, with the proposed Universal Pension Scheme as a key step towards expanding pension coverage and strengthening retirement security.
Proposed Framework
- The scheme will follow a defined contribution model, with each subscriber maintaining an individual pension account and selecting a Target Retirement Sum (TRS) based on the desired retirement income and expected retirement age. The required contribution will be determined by factors such as contribution frequency and expected investment returns.
- On attaining 60 years of age, subscribers may either convert the accumulated corpus into an annuity or opt for a Systematic Withdrawal Plan (SWP).
- The scheme integrates the long-term savings approach of the Employees’ Provident Fund (EPF) with a flexible pension payout mechanism.
Salient Features
Target Retirement Sum (TRS)
- Subscribers can choose and revise their retirement corpus according to their financial goals.
- The EPFO’s digital platform will estimate contribution requirements, monitor corpus growth, provide personalised dashboards, and generate inflation-adjusted retirement projections.
Contribution Framework
The scheme permits contributions from multiple sources, including:
- Employees and employers.
- Government co-contributions for eligible low-income workers.
- Aggregators of gig and platform workers.
- Corporate Social Responsibility (CSR) funds.
- NGOs and other authorised contributors.
Retirement Options
Subscribers may choose:
- Regular annuity payments.
- A Systematic Withdrawal Plan (SWP).
- Flexible withdrawal options that allow the remaining corpus to continue generating returns.
Coverage
The scheme seeks to extend pension benefits to:
- Informal sector workers.
- Gig and platform workers.
- Building and construction workers.
- Existing EPFO subscribers.
- Employees currently outside the Employees’ Pension Scheme (EPS).
A single Universal Account Number (UAN) will be linked to multiple employers or digital platforms while maintaining separate contribution records. The Government aims to bring nearly 2.5 crore gig and construction workers under the social security net over the next five years.
Family Benefit Fund: An actuarially managed Family Benefit Fund will provide survivor benefits for spouses, financial assistance for children, and support for orphaned dependents.
Significance
- Expands pension coverage to informal, gig, and platform workers.
- Promotes universal and inclusive social security.
- Encourages long-term retirement savings through a flexible contribution framework.
- Leverages digital technology for efficient and transparent pension administration.
- Supports the implementation of the Code on Social Security, 2020.
- Enhances old-age income security and promotes financial inclusion.
Conclusion
The proposed Universal Pension Scheme has the potential to strengthen India’s social security architecture by expanding pension coverage, encouraging long-term retirement savings, and providing a flexible, technology-driven retirement security framework for workers across all sectors.
