India’s Pension System ranks 34th in the Global Pension Index

20 October, 2020

 

  • The Mercer CFA Institute Global Pension Index compares 39 retirement income systems, covering almost two-thirds of the world’s population
  • The Netherlands and Denmark retain first and second place respectively and the coveted ‘A-grade’
  • The impact of COVID-19 on the provision of future pensions around the world will be negative due to reduced contributions, lower investment returns and higher government debt

Mercer released the results of its 2020 Mercer CFA Global Pension Index survey (MCGPI) that compares pension plans across the world. According to the survey, India had an overall index value of 45.7 among the countries analysed, scoring better than countries like Turkey and Argentina

 

This year’s index edition added two retirement systems – Belgium and Israel to compare a total of 39 retirement systems across the globe and covering almost two-thirds of the world’s population.

 

The index highlights key strengths of retirement pension systems around three sub-indexes - adequacy, sustainability and integrity, where India scored 38.8, 43.1 and 60.3 respectively. The low participation in private pension plans that are largely for the organised sector, accounts for lower coverage in terms of adequacy and sustainability for all workforce and hence the overall index. A higher of coverage of the workforce would help reduce pressure on future government expenditure.

 

According to Preeti Chandrashekhar, India Business Leader at Mercer – Health and Wealth: “The new social security code that was notified recently aims at inclusivity of the unorganised workforce besides gig and platform workers. This should definitely improve the participation and coverage and help increasing the sub-indexes adequacy and sustainability, as well as the overall index.”

 

The report also underlines areas of improvement for the pension system surveyed. In India, the report suggests improving the minimum level of support for the lowest earning group under adequacy, while in terms of sustainability, it is recommended to increase the contribution levels to statutory schemes. Finally, the integrity index could be further elevated by enhancing regulatory requirements for private pension system. The new labour codes that are in the process of being implemented could raise the adequacy and sustainability factors through to greater alignment in definition of pensionable wages and greater coverage by inclusion of hitherto uncovered segments of the working population.

 

Globally, the Netherlands had the highest index value (82.6) and has retained its top position in the overall rankings, notwithstanding the significant pension reforms occurring in that country. Thailand had the lowest index value (40.8).

 

For each sub-index, the highest scores were the Netherlands for adequacy (81.5), Denmark for sustainability (82.6) and Finland for integrity (93.5). The lowest scores were Mexico for adequacy (36.5), Italy for sustainability (18.8) and the Philippines for integrity (34.8).

 

The widespread economic impact of COVID-19 is heightening the financial pressures which retirees face, both now and in the future. Coupled with increasing life expectancies and the rising pressure on public resources to support the health and welfare of ageing populations, COVID-19 is exacerbating retirement insecurity, according to the 12th annual Mercer CFA Institute Global Pension Index.

 

Dr David Knox, Senior Partner at Mercer and lead author of the study, said: “The economic recession caused by the global health crisis has led to reduced pension contributions, lower investment returns and higher government debt in most countries. Inevitably, this will impact future pensions, meaning some people will have to work longer while others will have to settle for a lower standard of living in retirement.

 

“It is critical that governments reflect on the strengths and weaknesses of their systems to ensure better long-term outcomes for retirees.”

 

“Even before COVID-19, many public and private pension systems around the world were under increasing pressure to maintain benefits,” said Margaret Franklin, CFA, President and CEO at CFA Institute.

 

“We have learned a lot about the effectiveness of pension systems over the years, and while there is no single pension system model that will work for every country, the Global Pension Index provides comparative information to differentiate what is possible and practical in each market. CFA Institute is thrilled to be sponsoring this year’s Global Pension Index and we look forward to expanding its impact even further through this collaborative effort.”

 

To help alleviate the impact of COVID-19, governments deployed a diverse range of responses to support their citizens and pension systems.

 

In India, the government supported through contributions to the private pension plans and also through support to older population through an ex gratia payment. The National Pension System also allowed partial withdrawal to fulfil financial needs towards COVID expenses

 

“It is interesting to note that the top two retirement income systems in the Global Pension Index, the Netherlands and Denmark, have not permitted early access to pension assets, even though the assets of each pension system are more than 150% of the country’s GDP,” said Dr Knox.

 

COVID-19 has also increased gender inequality in pension provision.

 

“Even before COVID-19 disrupted economies across the world, many women faced retirement with less savings than men. Now, that gap is expected to widen further in many pension systems, particularly in the hardest hit sectors where women represent more than half of the workforce, such as hospitality and food services,” added Dr Knox.

 

For more information about the Mercer CFA Institute Global Pension Index, click here.

 

2020 Mercer CFA Institute Global Pension Index

 

 System

Overall 2020 index value

Sub-index values

Adequacy

Sustainability

Integrity

 Argentina

42.5

54.5

27.6

44.4

 Australia

74.2

66.8

74.6

85.5

 Austria

52.1

64.4

22.1

74.6

 Belgium

63.4

74.6

32.4

88.9

 Brazil

54.5

72.6

22.3

70.7

 Canada

69.3

68.2

64.4

77.8

 Chile

67.0

56.5

70.0

79.6

 China (mainland)

47.3

57.4

36.2

46.7

 Colombia

58.5

62.5

45.5

70.5

 Denmark

81.4

79.8

82.6

82.4

 Finland

72.9

71.0

60.5

93.5

 France

60.0

78.7

40.9

57.0

 Germany

67.3

78.8

44.1

81.4

 Hong Kong SAR

61.1

54.5

50.0

87.1

 India

45.7

38.8

43.1

60.3

 Indonesia

51.4

45.7

45.6

68.7

 Ireland

65.0

74.7

45.6

76.5

 Israel

74.7

70.7

72.4

84.2

 Italy

51.9

66.7

18.8

74.4

 Japan

48.5

52.9

35.9

59.2

 Korea

50.5

48.0

53.4

50.3

 Malaysia

60.1

50.1

58.6

78.0

 Mexico

44.7

36.5

55.8

42.2

 Netherlands

82.6

81.5

79.3

88.9

 New Zealand

68.3

63.8

62.9

82.9

 Norway

71.2

73.4

55.1

90.3

 Peru

57.2

59.5

49.2

64.6

 Philippines

43.0

38.9

53.4

34.8

 Poland

54.7

59.9

40.7

65.9

 Saudi Arabia

57.5

59.6

51.6

62.4

 Singapore

71.2

74.1

59.9

82.5

 South Africa

53.2

43.0

46.7

78.3

 Spain

57.7

71.0

27.5

78.5

 Sweden

71.2

65.2

72.0

79.8

 Switzerland

67.0

59.5

64.2

83.1

 Thailand

40.8

36.8

40.8

47.3

 Turkey

42.7

44.2

24.9

65.3

 UK

64.9

59.2

58.0

83.7

 USA

60.3

58.9

62.1

59.9

Average

59.7

60.9

50.0

71.3

 

About the Mercer CFA Institute Global Pension Index

Formerly known as the Melbourne Mercer Global Pension Index, the Global Pension Index benchmarks retirement income systems around the world highlighting some shortcomings in each system and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.

The Global Pension Index is a collaborative research project sponsored by CFA Institute, the global association of investment professionals, in collaboration with the Monash Centre for Financial Studies (MCFS), and Mercer, a global leader in redefining the world of work and reshaping retirement and investment outcomes.

This year, the Global Pension Index compares 39 retirement income systems across the globe and covers almost two-thirds of the world’s population. The 2020 Global Pension Index includes two new systems – Belgium and Israel.

 

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 2020 Global Pension Index introduces new questions relating to public expenditure on pensions, ESG (environmental, social and governance) investing and support for caregivers.

 

About Mercer

Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s more than 25,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a business of Marsh & McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 76,000 colleagues and annual revenue of $17 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.

 

About CFA Institute

 

CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion of ethical behaviour in investment markets and a respected source of knowledge in the global financial community. Our aim is to create an environment where investors’ interests come first, markets function at their best, and economies grow. There are more than 178,000 CFA charterholders worldwide in 162 markets. CFA Institute has nine offices worldwide and there are 159 local member societies. For more information, visit www.cfainstitute.org or follow us on Twitter at @CFAInstitute and on Facebook.com/CFAInstitute.

 

About the Monash Centre for Financial Studies (MCFS)

 

A research centre based within Monash University's Monash Business School, Australia, the MCFS aims to bring academic rigour into researching issues of practical relevance to the financial industry. Additionally, through its engagement programs, it facilitates two-way exchange of knowledge between academics and practitioners. The Centre’s developing research agenda is broad but has a current concentration on issues relevant to the asset management industry, including retirement savings, sustainable finance and technological disruption. 

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