The labour ministry has prepared a concept note for the scheme and is working on the detailed framework. Under the proposed model, subscribers could opt for higher payouts in the initial years of retirement by drawing down part of their savings, then reduce the payout later to let the remaining corpus continue earning interest.
The proposed framework is also expected to introduce a “Target Retirement Sum” (TRS), under which subscribers could set a retirement income goal and estimate the corpus required to meet it. The system could factor in variables such as the subscriber’s age, expected retirement age and desired pension, and project the contributions required to reach the target. Members could also get dashboards showing their accumulated corpus and progress towards their retirement goal, said a senior official.
The accumulation phase is expected to broadly follow the existing EPFO model, with contributions earning annual interest and receiving similar tax treatment. Subscribers would have flexibility in the frequency of contributions, rather than being required to make fixed monthly payments.
The proposed framework could allow a worker’s retirement account to receive contributions from several sources, rather than relying only on the worker. These could include employers, government support for lower-income workers, gig platforms, CSR programmes, NGOs and other third parties. The framework is also examining ways for individuals to make voluntary contributions to such accounts, said the senior official.
Emailed queries to the labour ministry and the EPFO remained unanswered till press time.
The proposed retirement framework is also considering two ways to use the accumulated corpus: converting it into a pension through an annuity, or retaining it with EPFO for systematic withdrawals.
The proposed model would differ from the existing Employees’ Pension Scheme (EPS), under which eligible EPFO members receive a monthly pension after retirement based on pensionable salary and years of service. Under the new framework, subscribers could instead retain their accumulated retirement corpus with EPFO and make systematic withdrawals from it, with the flexibility to increase or reduce the payout over time.
The new scheme would not replace EPS but continue to operate alongside it. While the existing EPS is linked to EPF membership through covered employment, the proposed scheme is being designed to extend retirement savings to workers outside the existing EPFO network, including gig workers, the self-employed, workers in the unorganised sector, and employees of exempted establishments. It would also give subscribers greater flexibility in both contributing to their corpus and drawing an income from it after retirement.
The concept note is awaiting approval before the proposal can be taken forward for further consideration, people in the know said.
The proposal was reported by Business Standard in June, when the ministry was considering a universal, flexible pension product under EPFO. It is now being developed as part of the broader EPFO 3.0 reforms, which also include an overhaul of the organisation’s technology systems and plans to introduce a core banking solution.
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