While India’s pension system has improved to some extent compared to last year, the country ranks 45th among the 47 pension income systems analyzed, a report said on Tuesday.

According to the 15th annual Mercer CFA Institute Global Pension Index (MCGPI), India had an overall index score of 45.9, up from 44.5 in 2022, ranking 45th out of the 47 pension income systems analyzed, largely due to improvement in sub-indices of adequacy and sustainability.

The Netherlands had the highest overall index value (85.0), closely followed by Iceland (83.5) and Denmark (81.3). Argentina has the lowest index value (42.3), it goes on to say.

This year, the Global Pension Index compares 47 pension schemes worldwide, covering 64 percent of the world’s population.

The Global Pension Index uses the weighted average of the adequacy, sustainability and integrity sub-indices to measure each pension system across more than 50 indicators.

The Global Pension Index 2023 includes three new pension income systems – Botswana, Croatia and Kazakhstan.

The report also showed that falling birth rates have put longer-term pressure on several economies and pension systems, negatively impacting the sustainability scores of countries such as Italy and Spain.

However, several Asian systems, including mainland China, Korea, Singapore and Japan, have implemented reforms over the past five years to improve their outcomes.

The report further said that India’s retirement income system consists of an earnings-related pension scheme for employees, a DC (Defined Contribution) Provident Fund (EPFO) and additional employer-managed pension schemes, which are largely DC-based in nature.

The government schemes were introduced as part of the general social security program aimed at benefiting the unorganized sector, the report said.

Also Read: India’s states likely to spend 29% more on capital expenditure in FY24: ICRA

“Changes in workforce dynamics, employment and family patterns have brought formal retirement sources to the fore. At the same time, there is an improvement in the net pension replacement rate and participation in private pension plans, which is reflected in the value of the adequacy and sustainability sub-indices.” “The coverage of the Indian workforce by private pension plans is still very low (6 percent),” said Preeti Chandrashekhar , Managing Director, Mercer – Health and Wealth, India.

Since there is no mandatory public pension plan with earnings-related contributions in India to replace part of pre-retirement income, a social security system that increases coverage of unorganized workers as well as the self-employed would further improve the effectiveness of the system, she said.

“There is a growing focus on making India a fully pensionable society and the government has taken a number of measures to achieve this. Facilitating further participation in private pensions would lead to higher private savings.” The conditions for disseminating information to members would go a long way to improving the governance and overall value of the index. “The results of this year’s Mercer CFA Institute Global Pension Index show that India’s pension system is slowly but surely getting stronger and offers more opportunities for improvement,” she added.

(This report was published as part of the auto-generated syndicated wire feed. No modifications were made to the copy by ABP Live other than the headline.)