EPFO 3.0 May Introduce Universal Pension For Self-Employed, Gig And Unorganised Workers

Unorganised sector workers may get another scheme to invest in for their retirement. The government, under the proposed Employees’ Provident Fund Organisation (EPFO) 3.0 version, plans to establish a universal pension system to cover gig workers, platform workers, and those in the unorganised sector. If implemented, this shift would allow workers to build retirement savings through various contribution streams.

Unlike the existing EPFO framework, where members typically receive a lump sum upon retirement, the new model is based on a defined-contribution system. During a worker’s earning years, contributions will accumulate just like the existing Employees’ Provident Fund (EPF), with the funds invested in government-backed securities and interest credited annually.

Upon retirement, the accumulated funds would convert into an annuity and become withdrawable as a regular pension or through a systematic withdrawal plan (SWP).

According to a report by the Indian Express, a Target Retirement Sum (TRS) is under discussion, where members set a financial goal and retirement age, and the system estimates the necessary contribution required to achieve the financial target.

To manage these accounts, members will be provided with a personalised digital dashboard that will display their total contribution, current corpus, and inflation-adjusted projections. The new framework, reportedly, seeks to provide retirees with withdrawal flexibility. So, a retiree could choose to increase withdrawals in their early retirement years by using their principal or reduce the withdrawal to keep the fund earning interest and grow for future payouts.

Notably, EPFO will utilise the core banking solution (CBS) technology platform to support this withdrawal framework and handle a large volume of users.

The proposal also introduces a widening of contribution sources. Beyond the workers and employers, the system may accept funds from government co-contributions for lower-income individuals, corporate social responsibility (CSR), non-governmental organisations (NGOs), and even digital platform aggregators.  

The framework may introduce a split-payment mechanism where a small portion of a digital transaction could be diverted into their social security wages. EPFO expects to bring nearly 25 million gig and construction workers under this scheme over the next five years. These workers will also be allotted the Universal Account Number (UAN), enabling them to track their income from multiple employers or platforms.

This reform is under development as of now and has not been announced by the government yet.

The proposed reform offers a flexible approach to retirement, and with the core-banking-aligned infrastructure support, social security may not remain limited to those in the formal workforce, but to everyone, whether working for others or working for themselves.

At present, the Pension Fund Regulatory and Development Authority (PFRDA) is running the Atal Pension Yojana (APY), which also offers a guaranteed pension, but the defined contribution and pension amount are fixed in APY, and only those who are not liable to pay income-tax, can apply for it.

EPFO’s Universal Pension Scheme is likely to be another option for subscribers to invest in a guaranteed interest social security scheme.