India’s pension system shows improvement in adequacy

India’s retirement system has improved marginally from 2021, revealed the 2022 Mercer CFA Institute Global Pension Index survey (MCGPI) released today. According to the survey, India had an overall index value of 44.4, up from 43.3 in 2021 ranking 41 out of the 44 retirement income systems analysed. 

According to Preeti Chandrashekhar, India Business Leader at Mercer – Health and Wealth, “The financial fragility of individuals has been exposed due to reasons such as the pandemic, global conflicts and volatile interest rates. The lack of a social system to support citizens has only accentuated the impact. Since the past decade or so, 2001-02, the government has adopted a number of measures aimed at pension reforms for both Central Government and for the unorganised sector. Subscribers under the National Pension System are also increasing. 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 penetration of private pension plans is low in India and with over 95% of the total workforce being in the unorganised sector, there is a need for strong facilitation so that these workers are not left out of the pension system. There is hope that new labour codes, when implemented, would give access to such coverage and drive the necessary improvement in the adequacy and sustainability sub-indices.

“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. Given the demographic diversity and the large percentage of the workforce in the unorganised sector, reforms in the pension system take time to manifest themselves,” said Preeti Chandrashekhar.

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 policy-makers’ 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.”

Globally, Iceland had the highest overall index value (84.7), closely followed by the Netherlands (84.6) and Denmark (82.0). Thailand had the lowest index value (41.7).

The MCGPI is a comprehensive study of 44 global pension systems, accounting for 65 percent of the world’s population. It benchmarks retirement income systems around the world, highlighting some shortcomings in each system, and suggests possible areas of reform that would help provide more adequate and sustainable retirement benefits.