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India needs to undertake strategic reforms to revamp the pension system so as to ensure adequate retirement income, revealed the 2021 Mercer CFA Global Pension Index survey (MCGPI) released on Tuesday. The Indian pension system ranked 40th on the overall index ranking out of 43 systems and had the lowest rank in the adequacy sub-index.

The primary objective of this annual survey by Mercer Consulting, a leading global management consulting firm, is to benchmark each retirement income system using more than 50 indicators.

This year’s index edition added four new retirement systems—Iceland, Taiwan, UAE and Uruguay. In its first appearance in the Index, Iceland overthrew the Netherlands to receive the highest overall index value of 84.2. Thailand had the lowest overall index value at 40.6.

According to the survey, India had an overall index value of 43.3 among the countries analyzed. The index highlights key strengths of retirement pension systems around three sub-indices—adequacy, sustainability and integrity, where India scored 33.5, 41.8 and 61.0 respectively. The adequacy sub-index represents the adequacy of the benefits that are being provided, the sustainability sub-index represents the likelihood that the current system is able to provide benefits in the future, while the integrity sub-index includes many legislative requirements that influence the overall governance and operations of the system which affect the level of confidence that citizens have in their system.

With little social security coverage in the country, the workforce in India has to manage pension savings on its own for the most part. The coverage under the private pension arrangement is just about 6% in India. With over 90% of the total workforce being in the unorganized sector, measures should be taken to get a larger workforce under pension savings. This would go a long way in improving the adequacy sub-index.

According to Preeti Chandrashekhar, India Business Leader at Mercer–Health and Wealth, “The Indian pension system is at an inflection point, especially as the longer-term effects of the covid-19 pandemic have not yet played out fully on the economy. Healthy pension systems contribute positively towards creating a stable and prosperous economy, as reported by the World Bank. While the government has already launched schemes as part of universal social security program aimed at benefiting the unorganized sector, and the National Pension System is gradually gaining popularity, radical and strategic reforms are needed to ensure adequacy and sustainability of social security for each and every Indian. With the rules under new Social Security Code that covers unorganized, gig and platform workers expected to be notified soon, one should see significant improvement on this front in the medium to long term."

The report also underlines areas of improvement for the pension system surveyed. In India, the report suggests introducing a minimum level of support for the poorest aged individuals and increasing coverage of pension arrangements for the unorganized working class for bettering the adequacy index. Introducing a minimum access age so that it is clear that benefits are preserved for retirement purposes is likely to go a long way in improving the sustainability index and the integrity index could be further elevated by refining the regulatory requirements for the private pension system.

Shamit Chokshi, CFA Society India’s Research & Advocacy Committee member, said, “India’s policy landscape for retirement benefits continues to evolve, with an intent to improve take rates in the private sector. Yet, the overall coverage through a pension is low due to minimal long-term public pension spending, low investment in NPS due to the absence of co-contribution, a lack of education and awareness, and different benefits and withdrawal terms compared to the state-managed pension fund. With these concerns in mind, the promise of a secure retirement depends on policymakers and industry stakeholders taking collective action to examine the strengths and weaknesses of pension systems, with the purpose of delivering better retirement benefits to every individual."

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