The Central Government is working on a new contributory pension scheme that could provide retirement security to millions of workers across India.
The proposed scheme is expected to cover employees in both the formal and unorganised sectors, including gig and platform workers who currently have little or no pension benefits.
The new pension plan will be introduced as part of the EPFO 3.0 reform programme, which aims to modernise the Employees’ Provident Fund Organisation (EPFO) with new technology and improved retirement services.
How Will the New Pension Scheme Work?
Under the proposed system, every member will receive an individual pension account on EPFO’s digital platform.
Regular contributions made by employees, employers, and other approved sources will be invested in long-term government-backed securities and other approved investments.
These savings will earn interest every year and continue to grow until retirement.
Once a member reaches 60 years of age, the accumulated savings, known as the Target Retirement Sum (TRS), will be converted into a monthly pension based on the prevailing annuity and interest rates.
According to officials, members will also have the flexibility to decide how they want to use their retirement savings once they reach the age of 55.
They may choose a regular pension through an annuity or opt for a Systematic Withdrawal Plan (SWP).
Smart Dashboard and Retirement Planning Tools
The new EPFO system is expected to offer several digital features that will help members plan their retirement more effectively.
Each member will have a personalised dashboard showing:
Total contributions made.
Current retirement corpus.
Progress towards the Target Retirement Sum.
Estimated monthly pension.
The platform will also calculate how much a member needs to contribute to reach their retirement goal.
If the member changes their savings target later, the system will automatically recalculate the required contributions.
Members will also be able to use retirement planning tools to estimate their future pension based on factors such as age, retirement age, contribution amount, interest rate, and inflation.
How Is It Different from NPS?
Government officials say the proposed scheme will not be the same as the National Pension System (NPS).
Unlike NPS, which mainly works through annuity-based payouts, the new EPFO scheme is expected to provide greater flexibility.
Retirees may choose to withdraw only the interest earned each year while keeping the principal amount intact.
They can also withdraw a higher amount in the early years of retirement if needed, with the remaining corpus continuing to earn interest.
Officials believe this flexible withdrawal option could help retirees manage their finances better while also protecting them from inflation over the long term.
Gig Workers and Unorganised Sector to Benefit
One of the biggest objectives of the new pension scheme is to extend retirement benefits to workers who are currently outside the existing Employees’ Pension Scheme (EPS).
The proposal includes coverage for:
Gig and platform workers.
Workers in the unorganised sector.
Building and construction workers.
Employees earning above the current EPS wage limit.
Funding for the scheme may come from multiple sources, including employee contributions, employer contributions, government support for low-income workers, contributions from digital platform companies, and even CSR or third-party funding.
This move is expected to support the government’s goal of expanding social security coverage under the Code on Social Security, 2020.
Family Pension and Balance Transfer Facility
The proposed scheme may also include family pension benefits for spouses, children, and orphans through a separate Family Benefit Fund.
In addition, members of EPF, GPF, and other provident fund schemes may be allowed to transfer their existing retirement savings into the new pension scheme to build a larger retirement corpus.
Why Is the Government Planning This Scheme?
India has a workforce of nearly 55 crore people, and around 76% of them work in the unorganised sector, where pension coverage is extremely limited.
The current Employees’ Pension Scheme (EPS) mainly benefits employees earning up to ₹15,000 per month, leaving many workers without retirement security.
The proposed EPFO pension scheme aims to bridge this gap by offering a flexible, contribution-based retirement plan that can benefit a much larger section of the workforce.
If implemented, the new scheme could become one of India’s biggest pension reforms, providing long-term financial security to millions of workers while making retirement planning more accessible and transparent.
