India’s retirement system has improved marginally from 2021, according to the 2022 Mercer CFA Institute Global Pension Index (MCGPI) Survey released on Tuesday.
According to the survey, India had an overall index value of 44.4, up from 43.3 in 2021, which ranked it at 41 out of the 44 retirement income systems analysed. Globally, Iceland came out on top, followed by the Netherlands, while Thailand ranked last.
The MCGPI is a comprehensive study of 44 global pension systems, accounting for 65 per cent of the world’s population. It benchmarks retirement income systems around the world, highlighting shortcomings in each system, and suggests possible areas of reform that would help provide adequate and sustainable retirement benefits.
The index highlights key strengths of retirement pension systems in three sub-indexes — adequacy, sustainability and integrity — where India scored 37.6, 40.7 and 60.4 respectively.
In particular, India’s adequacy score, at 37.6, improved from 33.5 in 2021. This is due primarily to an increase in net replacement rates and the revised scoring methodology to calculate minimum pension.
However, the ‘sustainability’ and ‘integrity’ sub-segments at 41.8 and 61, respectively, have declined.
In the absence of social security coverage in the country, the adequacy and sustainability sub-indices can be improved significantly by boosting coverage under private pension arrangements. Regulations can also be strengthened to provide a greater level of security for private pension plans, which would enhance the system’s integrity, according to Mercer.
The penetration of private pension plans in India is low. With over 95 per cent of the total workforce in the unorganised sector, there is need for strong facilitation so that these workers are not left out of the pension system. .
Preeti Chandrashekhar, India Business Leader at Mercer – Health and Wealth, said: “Given the demographic diversity and the large percentage of the workforce in the unorganised sector, reforms in the pension system take time to manifest. The results from this year’s Mercer CFA Institute Global Pension Index show that India’s pension system is getting stronger, but also highlight how much work still needs to be done.”
The financial fragility of individuals to factors such as the pandemic, global conflicts and volatile interest rates has been exposed. The lack of a social system to support citizens has only accentuated the impact.
“However, with traditional employer-employee relationships getting blurred, we need programmes that are inclusive of all Indian workers, including those in the gig economy. The new labour reforms are expected to usher in a framework to facilitate increased participation in private pensions, thereby, encouraging higher levels of private savings,” Chandrashekhar said.
Sivananth Ramachandran, Director, Capital Markets Policy, India, CFA Institute, said, “India, like its peers in the region, faces short-term macroeconomic risks from higher prices, rising interest rates, and widening current account deficits, but, with its strong economy, is better positioned to weather them. However, even as these short-term issues focus policymakers’ attention, they should continue to focus on the long-term issues in our pension system, such as improving the adequacy of pension benefits for the poorest segment of the population, and widening the coverage of pension arrangements for the unorganised working class.”