Universal provident fund scheme: How PF for gig workers, self-employed could work & why it would be a game-changer

A Universal Provident Fund Scheme that includes workers in the unorganised sector, gig workers and the self-employed is in the works with an aim to provide retirement security to the population. In what is being seen as a game-changing proposal, the Employees’ Provident Fund Organisation (EPFO) is working on a framework that will enable extending social security coverage and benefits to millions of workers who are currently outside the ambit of the EPF coverage.The proposed framework aims to allow unorganised sector workers and self-employed to set aside a portion of their income for deposits under a universal provident fund scheme which will earn regular interest on par with the existing EPFO scheme.At present, one of the main retirement savings options that is available to individuals – including government employees – is the National Pension System (NPS). The returns are market-linked and depend on the investment choices made by the subscriber in line with his or her risk profile.If the proposal is implemented, self-employed professionals such as freelance consultants would also be able to build retirement savings by contributing to the new provident fund model.The government has already made it mandatory for platforms such as taxi aggregators and food delivery applications to register all their workers on a dedicated portal, according to an earlier The Times of India report.Why is the proposal for a universal provident fund scheme important? What are the benefits and challenges to its implementation? We ask experts:

What is proposed?

According to the TOI report last week, the contribution mechanism for the scheme will be similar to the existing EPFO system. Workers would have the flexibility to contribute daily to annually, depending on what suits them best. The savings put into the scheme would earn an annual interest rate from EPFO. The tax benefits for this scheme are envisaged to be similar to EPFO, with contributions up to Rs 2.5 lakh annually being tax exempt. Other EEE (Exempt, Exempt, Exempt) benefits would also remain the same.

However, what will change is the withdrawal mechanism. The subscribers will be allowed to retain the accumulated corpus with the EPFO even after retirement, as per the proposal. This facility may be extended to the existing EPFO subscribers as well.Instead, the subscribers may be allowed to opt for a systematic withdrawal plan, which will allow people to choose how they receive their retirement savings. Flexibility in the withdrawal plan is also being considered, with higher withdrawals being allowed initially or larger layouts later. An official told TOI that the EPFO has examined international models, including Singapore’s, while developing the framework.The scheme would be financed entirely by the subscribers. The report said that even though EPFO has not been officially assigned the responsibility, the organisation has already floated a tender for designing and developing the required IT architecture to support the proposed system.

What are the benefits?

Experts say that if implemented, this could be one of the most significant expansions of India’s social security framework in recent decades. Why is this important? Because a universal pension or retirement fund is not in place.Kuldip Kumar, Partner at Mainstay Tax Advisors LLP explains that the Code on Social Security, 2020, provides for social security benefits such as life and disability insurance, health and maternity benefits, old-age protection, and accident insurance for gig and platform workers through dedicated social security schemes.

It also envisages the creation of a social security fund, with aggregators required to contribute between 1% and 2% of their annual turnover (subject to the prescribed limits). “However, a retirement savings mechanism comparable to the Employees’ Provident Fund (EPF) has not yet been in place for these workers,” says Kuldip Kumar.Fundamentally, the proposal has the potential to significantly widen access to retirement savings.“Today, a large segment of India’s workforce – including freelancers, gig workers, consultants and self-employed individuals – does not have access to a structured, long-term retirement savings mechanism comparable to EPF. A voluntary provident fund framework could help bridge this gap,” says Puneet Gupta, Partner, People Advisory Services Tax at EY India.He sees the benefits extending beyond retirement savings. It can encourage long-term financial discipline, provide access to a trusted social security institution, and create continuity of retirement savings even when individuals move between salaried employment, self-employment and gig work. “If accompanied by tax incentives and a simple digital experience, it could become an attractive savings option for workers outside traditional employment arrangements,” he says.Puneet Gupta points out that provident fund benefits have historically been linked to formal employment and payroll-based contributions. “However, the Code on Social Security, 2020 has created a legislative framework that allows the government to extend social security benefits to gig workers, platform workers, self-employed individuals and other categories traditionally outside the organised workforce,” he tells TOI.

He believes that a voluntary provident fund framework could therefore create a pathway for millions of individuals to participate in a formal retirement savings system, irrespective of the nature of their employment.“Viewed alongside EPFO 3.0 and the broader modernisation of the EPF ecosystem, the proposal reflects a shift towards a more inclusive, portable and technology-enabled model of social security that is aligned to the realities of today’s workforce,” he says.Kuldip Kumar explains that following the changes made to the Employees’ Pension Scheme (EPS) in September 2014, employees joining the EPF with monthly pay exceeding Rs 15,000 are generally not eligible to become members of the EPS. “Consequently, many such employees have relied on retirement products such as the NPS, particularly because of the associated tax benefits,” he tells TOI.

The Challenges

But even as the proposal is in the works, the biggest challenge to its implementation may arise from ensuring continued and regular participation. Experts note that one of the biggest reasons why traditional provident fund contributions works is due to it being tied to salaries and employers depositing the money on behalf of the workers.Puneet Gupta of EY says, “The biggest challenge will be participation and contribution continuity. Traditional EPF works effectively because contributions are linked to payroll and are made automatically every month. A voluntary framework catering to gig workers and self-employed individuals will need to deal with irregular income patterns, varying contribution capacities and changing work arrangements,”The EY expert points to another challenge: Designing the right user experience. Registration, contributions, account management and withdrawals must be simple enough for workers across diverse educational and economic backgrounds. EPFO 3.0 could play an important role here by providing the digital infrastructure needed to make participation seamless, he says.Finally, it is important to create the right incentive structure. “People must perceive clear value in committing a part of their income towards long-term retirement savings. Tax benefits, portability, ease of access, transparency and confidence in administration will all be critical factors influencing adoption,” Gupta says.

Moving towards universal retirement scheme

The proposal is being widely seen as India’s decisive step towards a universal pension scheme. In fact, experts believe it could be one the most inclusive retirement options.Kuldip Kumar says that one of the proposed scheme’s key strengths could be the confidence associated with an EPFO-administered scheme. Historically, EPFO has declared relatively stable and competitive annual interest rates on EPF accumulations, and in certain periods these have compared favourably with returns available from market-linked investment options. “This could influence retirement savers who prefer greater stability over market volatility, although the final attractiveness of the scheme will ultimately depend on its detailed design, contribution structure, withdrawal flexibility, and the returns it is able to deliver,” he says.

“It has the potential to become India’s most inclusive retirement savings platform because eligibility would be driven by the individual rather than the employer. Historically, access to provident fund benefits has depended on where a person works and whether the establishment falls within the EPF framework. This proposal changes the conversation from employment-based coverage to individual participation,” says Puneet Gupta.“While India already has savings and pension products such as EPF, PPF and NPS, a universal PF framework administered through the EPFO would be unique because it could allow people across different forms of work to participate in a common retirement savings ecosystem. Whether it ultimately becomes truly universal will depend on adoption levels, ease of access and participant confidence in the scheme,” he adds.