Even as India's retirement system has improved to some extent from last year, the country ranked 45 out of the 47 retirement income systems analysed, a report said on Tuesday.
India had an overall index value of 45.9 from 44.5 in 2022, ranking 45 out of the 47 retirement income systems analysed primarily due to improvement in adequacy and sustainability sub-indices, according to the 15th annual Mercer CFA Institute Global Pension Index (MCGPI).
The Netherlands had the highest overall index value (85.0), closely followed by Iceland (83.5) and Denmark (81.3). Argentina had the lowest index value (42.3), it added.
This year, the Global Pension Index compares 47 retirement income systems across the globe and covers 64 per cent of the world's population.
The Global Pension Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity to measure each retirement system against more than 50 indicators.
The 2023 Global Pension index includes three new retirement income systems – Botswana, Croatia, and Kazakhstan.
The report also revealed that falling birth rates has put pressure on several economies and pension systems over the longer term, negatively affecting the sustainability scores for countries like Italy and Spain.
Several Asian systems, however, including mainland China, Korea, Singapore, and Japan, have undertaken reforms to improve their scores in the last five years.
The report further stated that India's retirement income system comprises an earnings-related employee pension scheme, a DC (defined contribution) employee provident fund (EPFO) and supplementary employer-managed pension schemes that are largely DC in nature.
The government schemes have been launched as part of the universal social security programme aimed at benefiting the unorganised sector, said the report.
"Changes in workforce dynamics, employment and family patterns have brought formal sources of retirement to the forefront. While there is improvement in the net pension replacement rate and participation in private pension plans, which is reflected in the value of adequacy and sustainability sub-indices, the coverage of the Indian workforce under private pension plans is still very low (6 per cent)," Mercer - Health and Wealth, India Business Leader Preeti Chandrashekhar stated.
Given that India does not have a mandated public pension plan with contributions linked to earnings that aims at replacing some pre-retirement income, a Social Security System that increases coverage of unorganised workforce as well as the self-employed would further improve the efficacy of the system, she said.
"There is a growing focus on making India a full pensionable society and the government has undertaken a number of measures towards this. Facilitating further participation in private pensions would encourage higher levels of private savings.
"Focus on funding of gratuity plans, improved communication in terms of disseminating information to the members would go a long way in improving the governance and overall index value. The results from this year's Mercer CFA Institute Global Pension Index show that India's pension system is slowly but firmly getting stronger, with more opportunity for improvements," she added.