The government is working on a new contributory pension scheme for unorganised and formal sector workers that would accumulate contributions over time, and be invested in long-term government-backed securities, with annual crediting of interest. At the age of 60 years, the scheme may allow the proposed “Target Retirement Sum (TRS)” to be converted into pension, based on prevailing annuity and interest rates, a senior government official told The Indian Express.
The scheme, part of the 3.0 reforms phase of the retirement fund body Employees’ Provident Fund Organisation (EPFO), will cover existing members and those excluded from the Employees’ Pension Scheme (EPS). It is likely to adopt a defined contribution framework and allow contributions from multiple sources: workers themselves, employers, government co-contributions for workers in the lower wage segment, aggregators in the case of gig and platform workers, and corporate social responsibility (CSR) or third-party funds, the officials said.
The EPFO proposes to give the flexibility to the worker at the age of 55 years to decide the purpose for his or her retirement savings. “Till that time, it will operate like PF, you keep on accumulating. At that stage when you are retiring, it converts into an annuity or a systematic withdrawal plan,” the official said.
Under the proposed pension plan, each member will have an individual pension account. “The system will compute the proposed Target Retirement Sum (TRS) dynamically based on the member’s chosen pension goal and expected retirement age. Members will have personalised dashboards showing total contributions, real-time corpus status, and progress towards the TRS for applicable schemes,” another official said.
The system will project the required contribution amount and frequency to achieve the declared TRS. “Adjustments to TRS will be allowed and contribution requirements could then be recomputed accordingly. The system will accept and categorise contributions from multiple sources such as members, employers, or third-parties and update the member’s pension balance,” the official said.
When asked if this would be along the lines of the National Pension System (NPS), one of the officials cited above said the NPS is “purely annuity based, while the proposed pension scheme will be more flexible, risk free and based on real and not notional returns”. “We want to make it similar to the PF which continues with only the contributions being stopped because you are retired, so you will not have any contribution. It will then be a systematic withdrawal plan on the basis of your expected monthly pension payout. So, it can be equal to the interest that you want, in which case, the corpus will remain the same. For example, if 8% interest is declared and that 8% over Rs 1 crore is translating to Rs 8 lakh, so you divide it by 12 and that becomes your pension payout every month,” the official explained.
Elaborating further, the official said, “If you want higher in the initial stage, then it will be a drawdown from your principal. So, based on your longevity, you estimate that in 20 years you want to have a good pension, you can increase your drawdown. At the same time, you can reduce your drawdown. If you reduce your drawdown, your interest will get added to your principal. So, towards the later part, it becomes almost like an inflation-linked plan where towards the later part, you can have a higher payout. This is what we are thinking about.”
The flexibility to decide the amount for pension payouts or the drawdown will be given to the member. “The EPFO 3.0 system will allow users to simulate pension amounts based on parameters such as age, corpus, interest rate, and retirement age. It will also include additional input fields for voluntary contributions and contribution frequency. The system will provide inflation-adjusted projections as an optional feature. The estimated monthly pension, projected corpus at retirement, and comparative graphs will be displayed to the member, allowing multiple scenario comparisons for decision making taking into account variable contributions and multiple employment scenarios,” the official said.
The scheme also proposes family and survivor pensions for spouse, children, and orphans funded through a pooled “Family Benefit Fund”, managed on actuarial principles, the official said. Members of EPF, GPF, and other provident funds could also be allowed to transfer balances into the new pension initiative to enhance retirement savings, the official added.
The EPFO 3.0 reforms will bring new tech features and an upgradation to the core banking solution (CBS), and pave the way for PF contributions for all unorganised sector workers and gig workers, in line with the Code on Social Security that brings gig and platform workers into the social security net for the first time. The Code mandates aggregator contributions of 1-2% of annual turnover for social security, with the total contribution not exceeding 5% of the amount payable by the aggregator.
The retirement fund models of other countries such as Singapore are being studied to incorporate the best practices, the official said. Singapore’s social security scheme, Central Provident Fund (CPF), a deferred annuity scheme, sets aside savings not just for retirement but also for housing and healthcare. Singaporeans do not rely on individual CPF contributions alone for their retirement income as apart from a contribution of 20% of the salary to CPF, individual efforts are supplemented by employers, loved ones and the government, as per the information on the Singapore government website. Unlike pension schemes in other countries, CPF members earn an interest of up to 6% for those aged 55 and above, and 5% for those aged below 55.
While the new social security coverage scheme will make use of the EPFO’s digital infrastructure, the nodal agency for the implementation of the social security scheme is yet to be finalised by the Ministry of Labour and Employment.
ExplainedFlexibility based on age, pension goal
The scheme will cover existing members and those excluded from the Employees’ Pension Scheme (EPS). A Target Retirement Sum will be dynamically fixed based on the member’s chosen pension goal and expected retirement age.
As the EPFO expects around 2.5 crore gig workers and building and other construction workers (BOCW) over the next five years, the scheme is also being designed keeping in mind their inclusion into social security coverage for the first time. The scheme will incorporate “one-to-many mapping” where one UAN (Universal Account Number) will be registered with multiple employers and aggregators, showing total PF and pension contributions from all sources for these workers while maintaining their employer-wise breakdowns.
The EPFO system plans to allow third-party contributions like NGOs, individuals, donor organisations, CSR and track all contributions under each UAN with a configurable upper limit. “The new pension initiative would operationalise this through flexible co-contribution models, ensuring that delivery partners, drivers, and other platform workers are systematically included,” the official said.
Workers in higher-wage segments currently remain outside EPS coverage. “The new pension scheme would also allow them to build retirement savings in a contributory, actuarially sound framework under EPFO,” the official said.
The government is designing a new EPFO-led contributory pension scheme for unorganized and formal sector workers using a Target Retirement Sum converted at age 60. (AI generated) 
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