Universal provident fund scheme: How PF for gig workers, self-employed could work

A new Universal Provident Fund Scheme is being developed in India to extend social security benefits to gig workers, self-employed individuals, and members of the unorganised sector. This initiative, spearheaded by the Employees' Provident Fund Organisation (EPFO), aims to create a retirement savings mechanism accessible to millions of workers currently excluded from formal social security systems. The proposal marks a potential major expansion of India’s social security infrastructure, offering long-term financial stability to a large segment of the workforce. Under the proposed framework, contributors, ranging from freelancers to informal sector workers, would have the option to deposit a portion of their income into the new scheme. These contributions would accrue interest at rates comparable to those offered under the current EPFO structure. Unlike the National Pension System (NPS), which relies on market-linked returns based on individual investment choices, the new scheme would ensure fixed interest rates, providing more predictable growth for savers. Contributions up to Rs 2.5 lakh annually would qualify for tax exemption, mirroring the benefits available under the EPFO. Additionally, the scheme would maintain Exempt, Exempt, Exempt (EEE) status, allowing for further tax advantages. One of the key innovations of the new scheme is its flexible withdrawal mechanism. Subscribers would have the option to retain their accumulated funds within the EPFO upon retirement, rather than receiving a lump sum or annuity. This flexibility extends to existing EPFO subscribers as well, who could opt for a systematic withdrawal plan tailored to their financial needs. For instance, retirees might choose to withdraw larger amounts initially or spread payments over time, depending on their personal circumstances. The design of these features reflects an effort to align the scheme with international models, including Singapore’s approach to retirement savings. The proposal also introduces a requirement for digital registration, particularly for workers employed by online platforms such as taxi aggregators and food delivery services. According to previous reports, the government has mandated that these platforms register all their workers on a dedicated portal, ensuring transparency and accountability. This step is crucial for tracking contributions and managing the administrative aspects of the new system. While the EPFO has not yet formally taken ownership of the project, it has initiated the process of designing the necessary IT infrastructure to support the scheme, indicating a clear direction toward implementation. Experts suggest that the success of the scheme hinges on several factors, including public awareness, ease of access, and regulatory clarity. Kuldip Kumar, a partner at Mainstay Tax Advisors LLP, highlights the importance of the Code on Social Security, 2020, which mandates specific protections for gig and platform workers. The new scheme complements this legal framework by offering a structured retirement savings option that aligns with broader social security goals. However, challenges remain, particularly in ensuring widespread participation and maintaining the sustainability of the system given the reliance on voluntary contributions. The proposed Universal Provident Fund Scheme represents a significant shift in India’s approach to social security, addressing longstanding gaps in coverage for non-formal workers. As discussions continue and the EPFO moves forward with its plans, the focus will likely shift towards refining the implementation strategy, ensuring compliance with existing regulations, and promoting public engagement. With the potential to benefit millions, the scheme could serve as a cornerstone of India’s efforts to enhance financial inclusion and long-term economic security for its growing informal workforce.