Pension system in India in dire need of reforms: Study

India is ranked 40th out of 43 countries in the Mercer CFA Global Pension Index for 2021, indicating that the country’s pension system requires strategic improvements to secure appropriate income for retirees.

Mercer Consulting’s annual survey benchmarks each retirement income system using more than 50 indicators.

India earned an overall index value of 43.3 among the countries studied, according to the survey. The measure focuses on three sub-indexes of retirement pension systems: adequacy, sustainability, and integrity, with India scoring 33.5, 41.8, and 61.0, respectively.

The adequacy sub-index measures the quality of the benefits provided, while the sustainability sub-index measures the likelihood that the current system will continue to provide benefits in the future. The integrity sub-index includes many legislative requirements that influence the overall governance and operations of the system, affecting citizens’ trust in it.

Iceland, Taiwan, the United Arab Emirates, and Uruguay have all been added to the index edition. Iceland dethroned the Netherlands to obtain the highest overall index value of 84.2 in its maiden appearance in the index. With a score of 40.6, Thailand earned the lowest overall index.

Due to the lack of social security coverage in India, the workforce must handle pension funds on their own for the most part. In India, only about 6% of people are covered by private pension plans. With over 90% of the workers employed in the unorganised sector, steps should be taken to bring a larger percentage of the labour into the pension system. This would help the adequacy sub-index significantly.

The Financial Express quoted Preeti Chandrashekhar, India Business Leader at Mercer – Health and Wealth, as saying that healthy pension systems contribute to the creation of a stable and prosperous economy.

She is of the view that although the National Pension System is gaining traction, significant and strategic reforms are required to assure the adequacy and long-term viability of social security for all Indians.

With the upcoming notification of the rules under the new Social Security Code that cover unorganised, gig, and platform employees, this area should see a major improvement in the medium to long term, she added.

The research also identifies areas, where the pension system reviewed, could be improved. To improve the adequacy index in India, the research recommends establishing a minimum level of support for the poorest elderly people and expanding the scope of pension systems for the unorganised working class.

The Financial Express quoted Shamit Chokshi, CFA Society India’s Research and Advocacy Committee member, as saying that total pension coverage is low because of poor long-term public pension spending and low investment in NPS, among other factors