EPFO ceiling must rise with time

The decision to raise EPFO's mandatory coverage ceiling from ₹15,000 to ₹25,000 a month, which came into effect on September 17, widens social security for organised sector workers. But it comes with compromises. Worker organisations were seeking a higher ceiling and were urging GoI to speed up the revision, which had been frozen since 2014. The new limit is higher than the average salary in private enterprises by the government's reckoning. But the 12-yr gap in making such an adjustment doesn't inspire confidence about a process that required judicial intervention. The earlier ceiling had drifted down to the minimum government wage, which made pension planning optional for many. Voluntary contributions by workers to EPFO need a buy-in from employers, whose wage-bill dynamics change between mandatory and optional contributions. The reset ceiling is a correction for lost time. But the outcome will be shaped by payroll negotiations to keep CTC intact.

The extension of coverage is welcome. Yet, a more meaningful outcome would be served by drawing more workers into the organised sector. Formal job creation, and hence new EPFO members, is the metric that matters. The transition from informal to formal employment influences EPFO coverage on a larger scale than adjustments to ceilings. The process can be indexed to inflation for better results. EPS can do with indexing.

Expanding enrolment requires EPFO to generate returns that will serve specific needs of retirement savings, pension and life insurance. Rising contributions must be matched by improved governance and professional capability. Getting workers to contribute more is one half of the picture. Providing them choices and returns is the other, more meaningful, half.