Imperfect providence

India needs a more open retirement-saving framework

The government’s decision to raise the wage ceiling for mandatory Employees’ Provident Fund Organisation (EPFO) coverage from ₹15,000 to ₹25,000 a month brings the social-security framework closer to wages in India’s formal sector. The ceiling was last revised in September 2014, when it was raised from ₹6,500 to ₹15,000. Since then, both wages and the size of formal employment have increased. The Periodic Labour Force Survey (PLFS) Annual Report 2025 showed that average monthly earnings of regular wage/salaried workers were ₹22,699 in 2025. An earlier EPFO expert committee noted that countries such as the United States (US), Singapore and Brazil periodically adjusted such ceilings with reference to wages. There is a case that India should also revise the ceiling more frequently rather than waiting for so long and increasing it substantially at one go. The latest revision will also increase the government’s fiscal commitment. The Centre’s annual EPFO-related expenditure is estimated to rise from ₹10,250 crore to ₹11,339 crore. This mainly reflects 1.16 per cent contribution by the government to the Employee Pension Scheme (EPS) on the higher pensionable wage ceiling.

 

The larger adjustment, however, will be borne through higher contributions by employers and employees. Higher contributions could reduce the takehome pay for workers for a second time in quick succession. The Code on Wages (Central) Rules, 2026 already made companies revisit salary structures. It requires the basic pay and dearness allowance to be 50 per cent of the gross salary. The adjustment increased EPF contribution for a large number of workers. The revision in the wage ceiling would increase it further and reduce the takehome pay, though the money is being redirected towards retirement savings. The two changes could have been implemented together. Employers could also face a similar increase in their statutory contribution if their contribution is not already included in the overall cost-to-company in the pay structure. This matters particularly for labour-intensive firms and micro, small and medium enterprises, where margins and wage costs are closely linked. The expansion also puts a premium on the EPFO’s capacity to deliver services efficiently. The latest data shows about 79.8 million contributing members, while the EPS provides benefits to around 8.2 million pensioners. The EPFO settled 60.2 million claims in 2024-25, underscoring the organisation’s expanding digital capacity to process claims.

 

There is another, longer-term issue. A larger and increasing subscriber base will mean a faster-growing retirement corpus. The EPFO oversees retirement savings of more than ₹25 trillion. In 2025, a Reserve Bank of India report flagged gaps in its accounting, risk management, portfolio management, and internal governance. It also highlighted the need for investment strategies to be better aligned with the different liabilities of its provident fund, pension and insurance schemes. Increasing contribution, therefore, needs to go hand in hand with stronger governance, professional expertise, and actuarial oversight. Further, the government must consider giving employees more say in how their corpus is managed. One way is to provide an opt-out option. Employees may be allowed to save through the National Pension System instead of mandatorily getting enrolled with the EPFO.