In the latest report, India’s retirement system has shown some improvement compared to last year, with an overall index value of 45.9, up from 44.5 in 2022. However, India still ranks 45th out of 47 countries analyzed in terms of retirement income systems.
The improvement is mainly due to better scores in adequacy and sustainability. The top-ranking countries for retirement systems are the Netherlands, Iceland, and Denmark, while Argentina has the lowest ranking.
This year’s Global Pension Index examines retirement income systems in 47 countries, covering a significant portion of the world’s population, helping us understand how different nations handle retirement planning.
The 2023 Global Pension Index has welcomed Botswana, Croatia, and Kazakhstan into its evaluation, providing a thorough assessment of retirement systems by considering aspects like how well they ensure adequacy, sustainability, and integrity based on more than 50 indicators.
Interestingly, the report highlights that declining birth rates are creating challenges for various economies and pension systems, particularly affecting countries like Italy and Spain in terms of their system’s long-term sustainability.
On the flip side, some Asian nations, including mainland China, Korea, Singapore, and Japan, have actively implemented reforms in the past five years to boost their pension system scores.
The report also sheds light on India’s retirement income system, which includes different components like an earnings-related employee pension scheme, a defined contribution (DC) employee provident fund (EPFO), and employer-managed pension schemes that are primarily DC-oriented.
These government schemes are part of a broader effort to provide social security to the unorganized sector.
However, it’s worth noting that despite improvements in elements like net pension replacement rates and private pension plan participation (as reflected in the adequacy and sustainability sub-indices), the coverage of the Indian workforce under private pension plans remains quite low, at just 6 percent.
India currently lacks a mandatory public pension plan with earnings-based contributions aimed at replacing a portion of pre-retirement income.
Therefore, a broader Social Security System, which expands coverage to unorganized workers and the self-employed, could enhance the effectiveness of the Indian retirement system.
Efforts are being made to transform India into a society with comprehensive pension coverage. The government has initiated various measures to achieve this goal.
Encouraging greater participation in private pension plans, focusing on funding for gratuity plans, and improving communication to disseminate information to members can contribute to better governance and an improved overall pension index value.
In summary, the results from the Mercer CFA Institute Global Pension Index indicate that India’s pension system is gradually strengthening, with ample room for further enhancements and opportunities for improvement.
