News Life and Health23 Oct 2018

India:Pension system has some desirable features, but also major weaknesses

| 23 Oct 2018

India's retirement income system has been ranked 33rd out of 34 markets with retirement income systems, according to the Melbourne Mercer Global Pension Index (MMGPI), which is published by Mercer and the Australian Centre for Financial Services (ACFS).

The Indian overall index value fell slightly from 44.9 (out of a possible total score of 100) in 2017 to 44.6 in 2018 primarily due to the change from using the median income earner to the average income earner to calculate the net replacement rate in the adequacy sub-index, says the report.

India is ahead only of Argentina which has an overall index value of 39.2 for 2018.

India's pension system comprises an earnings-related employee pension scheme, a defined contribution employee provident fund, a defined benefit lump sum gratuity benefit and voluntary employer managed funds.

India has been given a 'D' grade along with Japan, China, South Korea, Mexico and Argentina which have an overall index value falling between 35 and 50. This grade indicates that the retirement income system has some desirable features, but also has major weaknesses and/or omissions that need to be addressed. Without these improvements, its efficacy and sustainability are in doubt.

The report says that India's overall index value for the Indian system could be increased by:

  • introducing a minimum level of support for the poorest aged individuals;
  • increasing coverage of pension arrangements for the unorganised working class;
  • introducing a minimum access age so that it is clear that benefits are preserved for retirement purposes;
  • improving the regulatory requirements for the private pension system;
  • continuing to improve the required level of communication to members from pension arrangements;
  • increasing the pension age as life expectancy continues to increase;
  • increasing the level of contributions in statutory pension schemes.

The MMGPI shows that the Netherlands and Denmark (with scores of 80.3 and 80.2 respectively) offer world class retirement income systems, topping the index globally.

In Asia Pacific, top performing countries are Australia, Singapore, and New Zealand, scoring 72.6, 70.4, and 68.5 respectively.


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