The Central Government is working on a new contributory pension scheme that could provide retirement security to workers in both the organised and unorganised sectors.
The proposed scheme is expected to be introduced under the EPFO 3.0 reform programme and aims to bring millions of workers under a pension system.
Unlike the existing Employees’ Pension Scheme (EPS), the new plan is expected to offer greater flexibility and could also cover gig workers, platform workers, and employees who are currently outside the pension system.
Contents
- 1 How the New Pension Scheme Could Work
- 2 Personalized Retirement Planning
- 3 More Flexible Than the National Pension System (NPS)
- 4 Digital Tools to Help Members Plan Better
- 5 Family Pension and Multiple Contribution Sources
- 6 Big Focus on Gig Workers and the Unorganised Sector
- 7 Why the Government Is Planning This Scheme
How the New Pension Scheme Could Work
Under the proposed scheme, every member will receive a digital pension account through the EPFO platform.
The money contributed by the employee, employer, and other eligible sources will be invested in long-term government-backed securities and approved financial instruments.
The investment will earn annual interest, helping the retirement corpus grow over time.
At the age of 55, members may be able to decide how they want to use their retirement savings.
Once they turn 60, 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.
Personalized Retirement Planning
One of the biggest features of the proposed scheme is that it will allow members to plan their retirement according to their financial goals.
The EPFO portal is expected to provide a personalized dashboard showing:
Total contributions made.
Current retirement corpus.
Progress toward the Target Retirement Sum.
Estimated monthly pension after retirement.
The system will also calculate how much a member should contribute to reach their retirement goal.
If a person changes their target in the future, the contribution amount will automatically be recalculated.
More Flexible Than the National Pension System (NPS)
According to government officials, the proposed scheme will be different from the National Pension System (NPS).
While NPS mainly depends on annuity-based payouts, the new EPFO scheme is expected to provide greater flexibility through a Systematic Withdrawal Plan (SWP).
Members may choose to withdraw only the interest earned on their retirement corpus, allowing the principal amount to remain intact.
They may also choose higher withdrawals during the early years of retirement by using part of their principal amount.
If they withdraw less than the interest earned, the remaining amount will continue to be added to the retirement corpus, potentially increasing future pension payouts.
Digital Tools to Help Members Plan Better
The proposed EPFO 3.0 platform will include retirement planning tools that allow members to estimate their future pension.
Using details such as age, retirement age, expected interest rate, contribution amount, and retirement corpus, members will be able to view projected monthly pension amounts and compare different retirement scenarios.
The platform may also provide inflation-adjusted projections and allow users to factor in voluntary contributions and changing employment over their careers.
Family Pension and Multiple Contribution Sources
The new pension scheme is also expected to include benefits for family members.
In case of the member’s death, spouses, children, and orphans could receive benefits through a proposed Family Benefit Fund, which would operate on actuarial principles.
The scheme is also expected to accept contributions from multiple sources, including:
Employees.
Employers.
Government contributions for lower-income workers.
Aggregators for gig and platform workers.
CSR funds and other third-party contributions.
Members of EPF, GPF, and other provident fund schemes may also be allowed to transfer their existing balances into the new pension scheme.
Big Focus on Gig Workers and the Unorganised Sector
One of the main objectives of the proposed scheme is to extend social security to workers who currently have little or no pension coverage.
This includes gig workers, platform workers, construction workers, and millions of employees in the unorganised sector.
India has around 55 crore workers, of which nearly 42 crore work in the unorganised sector.
The government hopes the new scheme will help provide long-term financial security to these workers.
The proposal also aligns with the Code on Social Security, 2020, which aims to expand social security benefits to gig and platform workers through contributions from digital aggregators.
Why the Government Is Planning This Scheme
The proposed pension scheme is designed to address the limitations of the current Employees’ Pension Scheme (EPS).
At present, EPS mainly covers employees earning up to ₹15,000 per month, leaving many higher-income employees and workers in the informal sector without pension benefits.
The new contributory pension scheme is expected to fill this gap by offering a flexible, technology-driven retirement solution that can cover a much larger section of India’s workforce.
If approved, the scheme could become one of the biggest retirement reforms under EPFO 3.0, helping millions of workers build long-term financial security after retirement.