According to the Mercer CFA global pension index survey, the Indian pension system has ranked 40th out of 43 pension systems across the globe, indicating the need for strategic improvements to rehabilitate the pension system to ensure sufficient retirement income. In 2020, India was in the 34th position out of 39 global pension systems.
The key strengths of the pension system in a country highlighted in the index are adequacy, sustainability, and integrity. The overall index value for India was 43.3, lower than the index value of 45.7 in 2020.
Iceland secured the first position with an overall index of 84.2. Thailand scored the lowest with an overall rank of 40.6.
India’s scores for adequacy, sustainability, and integrity indices are 33.5, 41.8, and 61, respectively.
The adequacy sub-index represents the appropriateness of the pension scheme services.
The sustainability sub-index indicates the probability of the existing structure to provide the services in the future.
The integrity sub-index highlights the administration and operations of the system that impact the people within the pension scheme system.
The majority of the workforce in India manages the pension funds on its own. The private pension scheme sector covers only 6% of the pension savings in India. More than 90% of the workforce is from the unorganized sector. Therefore, measures should be taken to bring a large percentage of the population under pension savings.
The sustainability index could be improvised by introducing minimum age access so that it becomes clear that the benefits are for retirement purposes. Refining the regulatory systems in the private pension scheme system could elevate the integrity sub-index.
National Pension Scheme (NPS), a scheme launched by the government as a part of a universal social security program aims at helping the unorganized sector. NPS is gaining popularity but strategic and radical changes are required to ensure the social security of every Indian.
Under the NPS scheme, the employees are encouraged to invest in pension accounts during their employment period. The amount set aside gets invested in debt and equity markets. On retirement, the principal amount with returns is provided to the subscriber. The subscriber can withdraw a lump sum amount and then receive the remaining amount on monthly basis.
With the introduction of new rules under the Social Security Code that covers the unorganized, gig, and informal sector, there could be a significant shift from medium to long term.
Mercer consulting is a leading global consulting firm that comes up with an annual index by using more than 50 indicators for the pension system. This year four new retirement income systems were added – Iceland, USE, Taiwan, and Uruguay.
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