The Employees’ Pension Scheme (EPS) is a social security scheme administered by the Employees’ Provident Fund Organisation (EPFO) to provide post-retirement income security to workers in the organised sector. Introduced in 1995, the scheme is funded through contributions from employers and the government, with a portion of the employer’s contribution to the Employees’ Provident Fund (EPF) diverted toward the pension fund. The EPS aims to ensure financial stability for workers after retirement, as well as provide pensions to family members in cases of disability or death.

Under the earlier EPS 1995 framework, pension benefits were determined based on the employee’s pensionable salary and years of service. However, several modifications were introduced over time that reduced the potential pension benefits. For instance, the pensionable salary was calculated based on the average salary of the last 60 months instead of the earlier 12 months, effectively lowering the final pension amount. Additionally, eligibility for the scheme was limited to employees earning up to ₹15,000 per month, which restricted coverage and limited contributions from higher-income workers.

The recently approved EPS 2026 replaces the EPS 1995 scheme but has raised concerns among stakeholders. The new scheme reportedly removes the option for higher pension contributions, which was previously allowed under certain conditions. Critics argue that the absence of an increase in the wage ceiling and the continuation of the ₹1,000 minimum pension—a figure fixed more than a decade ago—indicate limited improvements for beneficiaries. The shift from EPS 1995 to EPS 2026 thus represents a major restructuring of India’s pension framework, but questions remain regarding its adequacy in ensuring long-term social security for millions of workers.

The approval of EPS 2026 by the EPFO’s Central Board of Trustees (CBT) has generated criticism because of the perceived lack of transparency and stakeholder consultation in the decision-making process. The scheme affects approximately 5.4 crore contributing members and 82 lakh pensioners, making it one of the largest social security reforms in India. Despite its far-reaching implications, neither the government nor the Ministry of Labour had publicly discussed the proposed changes or invited stakeholder feedback prior to the announcement.

In a democratic policy-making framework, large-scale reforms that impact millions of workers typically involve consultative processes with trade unions, employers’ associations, and policy experts. Such engagement helps ensure that the scheme addresses the needs of beneficiaries and reflects consensus among stakeholders. However, in the case of EPS 2026, the abrupt notification of the scheme alongside the Code on Social Security, 2020 has raised concerns about whether adequate deliberation took place before its implementation.

The transparency concerns stem from several factors:

• Lack of prior consultation with trade unions and employee representatives.
• Absence of public debate on key provisions such as pension eligibility and contribution limits.
• Limited disclosure of the financial and actuarial calculations behind the reform.
• Uncertainty among beneficiaries about how the new rules will affect their pension benefits.

Over the past decade, several policy changes in the Employees’ Pension Scheme (EPS) have significantly affected the pension benefits available to workers in India. These modifications were often introduced with the intention of improving the financial sustainability of the pension fund, but many critics argue that they have reduced the benefits available to employees and pensioners.

One major change was the introduction of a wage ceiling of ₹15,000 for pension contributions. While the original design of the scheme aimed for broader coverage, the wage ceiling effectively limited contributions from higher-income workers and reduced their eventual pension benefits. Another important modification was the change in the calculation of pensionable salary—from the average salary of the last 12 months to the last 60 months. This significantly reduced the pension amount because salaries tend to rise toward the end of a worker’s career.

Additional changes that affected beneficiaries include:

• Restrictions on the higher pension option introduced in 2014.
• Eligibility conditions that made it difficult for many retirees to opt for higher pensions.
• Stagnant minimum pension of ₹1,000 for over a decade.

The introduction of EPS 2026 has triggered debate about the adequacy and fairness of India’s pension system. While the government may aim to ensure the long-term sustainability of the pension fund, critics argue that several provisions in the new scheme may undermine the social security objectives of the EPFO. The reform has been perceived by some observers as an attempt to reduce the financial burden of pension commitments rather than strengthen retirement benefits.

One major criticism is the removal of the higher pension option, which previously allowed employees to contribute a larger portion of their salary toward the pension fund in exchange for higher retirement benefits. This option was particularly important for workers with long careers in the organised sector. Its removal could reduce the flexibility of the pension system and limit the ability of workers to enhance their retirement income.

Key criticisms of EPS 2026 include:

• No increase in the wage ceiling of ₹15,000 for pension contributions.
• Stagnant minimum pension of ₹1,000 despite inflation and rising living costs.
• Limited stakeholder consultation before implementing the reform.
• Perception of reduced pension commitments by authorities.

Strengthening India’s pension and social security framework has become increasingly important due to demographic changes, economic transitions, and the growing need for income security in old age. Although India currently has a relatively young population, the country is gradually moving toward an ageing society. As life expectancy rises and family structures evolve, traditional forms of social support—such as extended family care—are becoming less reliable.

For workers in the organised sector, schemes such as the Employees’ Provident Fund (EPF) and the Employees’ Pension Scheme (EPS) serve as critical sources of financial security after retirement. However, the adequacy of these benefits has come under scrutiny due to inflation, rising healthcare costs, and the stagnation of pension amounts over time. A minimum pension of ₹1,000, for instance, provides very limited support for retirees in today’s economic environment.

Strengthening the pension system is important for several reasons:

• Ensuring income security for retirees in an ageing society.
• Reducing old-age poverty among workers.
• Enhancing economic stability by providing predictable retirement income.
• Promoting social justice through inclusive welfare policies.

Reforming India’s Employees’ Pension Scheme (EPS) requires balancing financial sustainability with the objective of providing adequate retirement income to workers. As a policy advisor, the first step would be to reassess the wage ceiling and minimum pension levels. The current ceiling of ₹15,000 and the minimum pension of ₹1,000 were fixed over a decade ago and do not reflect current economic realities. Increasing these thresholds would help ensure that pension benefits remain meaningful in the face of inflation and rising living costs.

Another important reform would involve strengthening the financial base of the pension system. This could include higher contributions from employers and voluntary additional contributions from employees who wish to secure larger retirement benefits. Greater government support may also be necessary, particularly for low-income workers who depend heavily on social security schemes.

Key reform measures could include:

• Periodic revision of wage ceilings linked to inflation and wage growth.
• Enhancement of the minimum pension to ensure basic income security.
• Reintroduction of flexible higher pension options for willing contributors.
• Greater transparency and stakeholder consultation in policy decisions.
• Improved fund management to increase returns on pension investments.