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Government may roll out flexible pension scheme for all workers under EPFO 3.0 reforms

UPSC / SSC current affairs note · Economy

Social JusticeEconomy

Why in news

The government is reportedly working on a new contributory pension scheme as part of EPFO 3.0 reforms, aiming to cover formal, unorganised, gig, platform, and higher-wage workers. This could significantly expand retirement coverage beyond the existing Employees' Pension Scheme (EPS).

Background

Currently, the Employees' Pension Scheme (EPS) under EPFO covers only certain categories of formal sector workers. Many workers, especially in the unorganised and gig sectors, lack pension coverage. The proposed scheme is part of broader EPFO reforms to address this gap.

Key facts

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  1. The proposed scheme is a defined contribution pension model, unlike the existing defined benefit EPS.

  2. It will cover formal, unorganised, gig, platform, and higher-wage workers currently outside EPS.

  3. A key feature is the 'Target Retirement Sum' (TRS) approach, dynamically computing the corpus needed for a chosen pension goal.

  4. Members will have personalised dashboards showing contributions, corpus status, and progress towards TRS.

  5. Contributions can come from employees, employers, government co-contributions (for lower-income workers), aggregators (for gig/platform workers), and third parties like CSR funds, NGOs, and donor organisations.

  6. At age 60, the accumulated corpus can be converted into a pension based on prevailing annuity and interest rates.

  7. Interest will be credited annually on the accumulated savings, invested in long-term government-backed securities.

  8. Members can revise their retirement goals and contribution frequency as needed.

Prelims pointers

  • EPFO: Employees' Provident Fund Organisation
  • EPS: Employees' Pension Scheme (existing defined benefit scheme)
  • EPFO 3.0: Reform agenda for EPFO
  • Target Retirement Sum (TRS): Proposed dynamic calculation of required retirement corpus
  • Defined contribution vs defined benefit pension schemes
  • Gig and platform workers: covered under proposed scheme
  • Government co-contributions for lower-income workers
  • CSR funds as potential contribution source

Mains angles

  • GS2: Social Justice - Welfare schemes for vulnerable sections, labour reforms
  • GS3: Economy - Inclusive growth, financial inclusion, pension reforms
  • Critically examine the potential of the proposed flexible pension scheme to address the coverage gap in India's social security system.
  • Discuss the challenges in implementing a universal pension scheme covering formal, informal, and gig workers.
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