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Under a new initiative by the Ministry of Labour, a Universal Pension Scheme will offer all workers flexible payment options. Subscribers will be able to customize their contribution and withdrawal models according to their specific needs.

The Ministry of Labour is preparing to launch a new Universal Pension Scheme under the Employees' Provident Fund Organisation (EPFO). This scheme will allow subscribers to withdraw a portion of their savings during the early years of retirement to receive a higher pension, and subsequently reduce the pension amount, thereby allowing the remaining balance to continue earning interest.

Typically, there is an immediate need for funds right after retirement. Beyond medical expenses, there are various family responsibilities—such as funding children's higher education or covering significant wedding expenses. During this period, subscribers will be able to withdraw a larger portion of their accumulated corpus. The remaining funds will stay securely with the EPFO.

The remaining balance will continue to earn government-mandated annual interest, allowing the fund to grow rather than deplete entirely. As financial needs decrease with age, subscribers can lower their monthly pension amount, ensuring the fund lasts for a longer duration or throughout their later years.

Why is this better than traditional pension schemes?

Currently, schemes like the National Pension System (NPS) mandate the purchase of an annuity using at least 40% of the retirement corpus; this annuity yields a fixed return that cannot be altered. In contrast, this new EPFO ​​scheme proposes giving subscribers full control over their own money, eliminating the mandatory annuity requirement.

To put it simply, with annuities offered under schemes like Jeevan Akshay or NPS, your funds get locked in after the initial investment. You receive a fixed monthly amount, but if a sudden emergency arises post-retirement requiring a large sum of money, you cannot withdraw the accumulated corpus. Under the Universal Pension Scheme, your money remains with the EPFO ​​in your own account. You will be able to withdraw funds according to your needs, similar to a Systematic Withdrawal Plan (SWP). In an emergency, you can increase your monthly withdrawal amount or even withdraw a lump sum from the fund if required.

What will the tax rules be?

Consideration is being given to keeping the tax rules for the proposed Universal Pension Scheme (EPFO 3.0) aligned with the existing EPFO ​​model. Since the scheme is currently in the draft stage, the government will notify the final tax regulations only at the time of its official launch.