India’s retirement savings and income system index value has marginally slipped since 2011, but its overall global ranking stays constant. India ranked last among the 18 countries covered.
This was revealed in the Melbourne Mercer Global Pension Index released earlier this week. The Melbourne Mercer Global Pension Index was created in 2009 with 11 countries. The index now represents 18 countries covering 50 per cent of the global population and includes a diversity of experience and pension systems which are reflective of the range of approaches selected around the world.
The report looks at both publicly funded and private components of a system as well as personal assets and savings outside the pension system. The report has been produced by Mercer and the Australian Centre for Financial Studies and funded by the Victorian State Government.
According to the report, India’s value in the Melbourne Mercer Global Pension Index has decreased from 43.4 in 2011 to 42.4 in 2012. “The index value fell due mainly to the introduction of Worldwide Governance Indicators,” the report said.
An overall score of 35-50 indicates that the system has some good features but also has major risks or shortcomings that should be addressed. Without these improvements, its efficacy and/ or long-term sustainability can be questioned.
Says Arvind Usretay, Retirement Risk Finance, Business Leader, Mercer India: “India does not have a universal social security system. A large section of India’s elderly population is not covered by any pension scheme. Pension reform would not only enhance retirement security of citizens, but will also helps the Central and the State Governments to cut their future liabilities.”
Usretay further stated: “There are several measures which India should consider adopting to enhance retirement benefits for citizens. These include introducing a minimum level of support for the poorest aged individuals, a mechanism to increase the pension age as life expectancy continues to rise and increasing levels of contribution in the statutory pension scheme. “
Denmark received an overall index value of 82.9 and became the first system to be classified as ‘A’ grade, moving the Netherlands from the top position in the rankings.
Mercer Senior Partner and author of the report, David Knox, said “Many of the world’s retirement systems are under increasing stress with an ageing population, low investment returns and, in some cases, significant Government debt. Reform is needed to ensure that adequate benefits are provided over the long term in a sustainable manner.”
Knox also commented on this year’s special chapter on the asset allocation of pension funds around the world. He noted that the exposure to growth assets (which includes equities and property) ranges from virtually zero in some countries to more than 70 per cent in Australia.
The methodology adopted: Each country is given a score between 0 and 100. The overall index value represents the weighted average of the three sub-indices – adequacy, sustainability and integrity.