E-Paper
How EPF reforms as catalyst for universal social security
This article is authored by Balasubramanian A, senior vice president, TeamLease Services.
A nation’s strength lies not just in the size of its workforce, but in how securely that workforce can retire. As India marches toward its vision of becoming a developed nation by 2047, one of the most transformative changes quietly unfolding is the formalisation of its workforce. Out of the country’s 145 crore people, nearly 90 crore fall within the working-age population. Yet, only about eight to nine crore individuals, or barely 15%, are part of the formal workforce with access to provident funds and social security benefits. Encouragingly, this figure has nearly doubled in the last few years, despite the overall workforce growing by around 10%. This means that the pace of formalisation is almost ten times faster than the growth of the workforce, a promising indicator of structural change.
However, bringing people into the formal fold has always come with its own set of challenges: Chief among them, the gap between gross salary and take-home pay. For India’s vast blue-collar and low-income segments, even small deductions can feel significant, often discouraging participation in formal employment. Recognising this, the recent EPFO reforms have been designed with an intent to lower entry barriers and make accessibility easier. The new withdrawal norms represent a balance between enabling financial flexibility and encouraging long-term savings discipline.
While the provident fund is a worker’s own money, its framework serves a deeper purpose to instill financial prudence in a nation still adapting to longer lifespans. Four decades ago, India’s life expectancy was 55 years; today, it’s 73 and projected to touch 80–85 in the coming decades. Tomorrow’s retirees may thus need to sustain themselves for over two decades post-employment.
The updated EPFO norms acknowledge this reality. The minimum service period for eligibility has been reduced to 12 months, encouraging early savings, while exit conditions have been tightened: complete withdrawals now require 12 months of unemployment for EPF and 36 months for EPS. This ensures social security funds remain a true safety net for life after work, not merely a source of short-term liquidity. Allowing up to 75% withdrawals with flexible, purpose-based options: for marriage, education, and other needs, strikes a balanced approach between access and accountability.
Today’s workforce, especially younger generations, operates in an environment of instant gratification. The same impatience extends to financial behaviour, preferring immediate access over long-term stability. The new EPFO reforms aim to gently counter this by embedding a “save first” mindset. Employers, too, play a vital role here. By advocating the value of delayed gratification and the long-term benefits of participating in a provident fund, they can help shape a culture of responsible financial planning among employees.
Over half of all final EPF withdrawals are below ₹20,000, barely a year’s savings even for minimum-wage earners. Raising the exit threshold is therefore not a deterrent but a safeguard to ensure lasting financial security.
At the same time, EPFO’s digital transformation has made access faster, simpler, and more transparent. What once took months now happens within days or even hours. In FY24, nearly 25% of claims were rejected due to mismatched or incomplete documents. With paperless processing and auto-settlement for partial withdrawals, such errors are expected to fall sharply, reinforcing both trust and efficiency in social security delivery.
India’s labour landscape is evolving rapidly. With over a crore gig workers and an increasing share of contractual employment across industries, traditional definitions of “formal employment” need rethinking. While the draft Labour Code 2020 proposes bringing gig and platform workers under the social security umbrella, its full implementation is still pending. Extending EPFO and ESI benefits to this segment could mark a crucial step toward inclusive financial protection.
At the same time, there’s merit in revisiting withdrawal norms based on income thresholds rather than purely on employment type. For minimum-wage earners, the PF contribution represents a much larger share of disposable income compared to higher earners. Introducing tiered withdrawal conditions could make the system more equitable while maintaining its long-term objectives.
India’s evolving workforce is still developing financial literacy and investment discipline. While many advanced economies allow employees to choose how their retirement corpus is invested across equity, debt, or hybrid portfolios, such flexibility may not be suitable for India, at least not yet.
The recent surge in speculative trading, IPO frenzy, and retail exposure to high-risk financial products underscores this reality. The majority of those who lost money in post-pandemic futures and options (F&O) trading were under 30, the same demographic that forms the backbone of India’s workforce. Until saving and investing become ingrained life habits, maintaining a single, secure EPF investment structure ensures stability and protection for the average worker.
Social security in India extends beyond the provident fund. Schemes like the Employee Deposit Linked Insurance (EDLI), which provides up to ₹7 lakh in coverage at a nominal cost, and ESI, offering comprehensive health care for workers earning below ₹21,000 per month, are vital yet under-communicated benefits. Together, they form a robust safety net that rivals the offerings of many private-sector counterparts.
The evolution of the EPFO framework is not just a regulatory update; it’s a cultural shift. By lowering entry barriers, tightening exit provisions, and digitalising access, India is moving toward a future where formal employment is not only aspirational but secure.
The next phase of growth will depend on how well employers champion this transition by encouraging participation, educating workers about their rights and benefits, and reinforcing the importance of long-term savings. In doing so, the workforce can transition from merely earning a living to building financial resilience for a lifetime.
This article is authored by Balasubramanian A, senior vice president, TeamLease Services.
