India is reworking the architecture of social security. The labour codes are edging closer to implementation, with draft rules under public consultation, several states initiating rule-making, and administrative systems preparing for the transition. At this juncture, a central question comes into focus: will the evolving design of social security align with workers’ lived realities? One clue lies in how provident funds are being accessed.
In June 2025, the Employees’ Provident Fund Organisation (EPFO) raised the auto-settlement limit for advance claims from ₹1 lakh to ₹5 lakh. In the 10 weeks that followed, close to 70 percent of PF advance claims were processed automatically. From an administrative standpoint, this is a success. From a system design perspective, it invites a deeper enquiry into what workers expect.
PFs were conceived as instruments of long-term savings. In practice, workers increasingly use them to manage unavoidable disruptions to income and consumption. The instinctive explanation is weak financial discipline. That reading misses a deeper reality. For a large share of India’s workforce, liquidity is not a preference; it is a constraint. A rupee today carries far greater value than a rupee decades later. When wages are modest and uncertainty persistent, the time value of money weighs heavily on every decision.
Seen this way, withdrawals are not a failure of the PF idea. They are signals on how workers smooth consumption across uneven working lives. The larger question, therefore, is not whether withdrawals should be discouraged, but what role PFs should play across the full arc of a working life and where responsibility for old-age income should ultimately rest.
For this, India’s constitutional framework offers an anchor. Article 366(17) defines pension expansively, covering not only periodic retirement payments but also gratuities and returns from PF contributions. Seen in this light, pension is neither charity nor deferred pay. It is income support that continues when earning ability declines or ends. The EPF system is distinctive because it translates this idea into a rights-based framework during working life, ensuring that savings are accumulated as an entitlement rather than a matter of choice alone.
The Employees’ Pension Scheme (EPS) was designed to carry this logic forward, but only partially. The 10-year minimum service condition and refunds for shorter service were introduced as fairness measures. Over time, they have had the opposite effect, steadily shrinking the pension pool. This is often described as the ‘cobra effect’, where incentives undermine the outcome they were meant to secure. Locking the pension component until retirement, even at a modest level, could establish a predictable income floor and prevent distortions.
Whether such redesign is feasible depends not only on institutional choices, but also on demographic timing. In this respect, India’s population profile strengthens the case for acting now, but only if it is read carefully.
The UN’s projections show that nearly 68 percent of India’s population is of working age, while only about 7 percent is above 65. Contributors outnumber potential pensioners by roughly three to one, a balance most advanced economies lost long ago. This is not a guarantee; it is an opportunity. Much of the working-age population remains outside contributory systems altogether. That is precisely why design choices matter.
India’s median age, still under 29, reflects demographic momentum while net fertility has already fallen. The workforce will continue to expand for another two to three decades before ageing accelerates. The constraint India faces today is not demography, but institutional reach. Pension sustainability is shaped less by how old the population is, and more by who is covered, for how long and under what rules.
Many of these constraints surface in quieter parameters that govern entry and exit. Wage ceilings are one. In India, they have historically functioned as thresholds for exclusion. This is most explicit in EPS, which restricts enrolment for those earning more than ₹15,000 a month. Even where EPF allows a voluntary window, the pension element remains closed.
Internationally, wage ceilings serve a different purpose, defining contribution limits. Treating ceilings as barriers fragments coverage; treating them as contribution thresholds preserves universality while managing fiscal exposure. Extending EPS coverage to all workers up to the wage ceiling would also reduce the long-term risk of a shrinking contributor base.
Recent policy already reflects a shift in this direction. Under PM Viksit Bharat Rozgar Yojana, employers receive graded incentives of ₹1,000, ₹2,000 and ₹3,000 per month across rising wage bands. The capped incentive of ₹3,000 broadly aligns with the employer’s 12 percent contribution at wage levels around ₹25,000, indicating that higher bases are already being accommodated within a fiscally-bounded design. Eligibility and subsidy are consciously separated. This logic can guide pension reform as wage ceilings are revisited.
This moment also invites a deeper rethink of the policy architecture. India’s social security systems remain organised around employer and employee, contractor and contractual worker. That logic reflected an economy of long tenures and stable firms. It sits less comfortably with a labour market shaped by platforms, short contracts and multiple income streams.
India’s digital public infrastructure enables a shift in design from institutions to workers and transactions. Individuals form the first layer; firms, contractors and platforms the second; and the transaction itself the third, where value is created and rule-based contributions can be embedded wherever digital trails exist.
This is not about replacing law with code. It is about embedding statutory obligations into system design where feasible, reducing reliance on after-the-fact enforcement. Registries alone do not create protection, but they provide the scaffolding for deeper linkages.
Adequacy remains a parallel concern. International comparisons show that pension systems perform best when benefits are adequate, financing is sustainable and institutions are trusted. India scores low on adequacy and coverage, not because its population is old, but because too few workers remain within contributory systems long enough to build meaningful pensions. Expanding EPS and locking its pension component in a measured manner could address both gaps.
India’s recent recognition by the International Social Security Association for expanding coverage from about 19 percent a decade ago to over 64 percent today marks real progress. But it’s only a beginning. The country now has a narrow window to secure old-age income before demographic pressures harden. Used well, this moment can help anchor a Viksit Bharat where growth is matched by dignity across a working life.
Uttam Prakash | Regional PF Commissioner, Kochi & Lakshadweep
Navendu Rai | Regional PF Commissioner, Bengaluru
(Views are personal)