India took the last position out of 48 countries surveyed to measure people’s pension status after retirement in the Mercer CFA Institute Global Pension Index (MCGPI) 2024. Its 16th annual report considered over 50 indicators and three sub-indices: Adequacy, Sustainability, and Integrity. India dropped to 44 points or 1.9 points less, from 45.9 points in 2023.

The study, conducted since 2009, included 48 retirement income systems globally to prepare the 2024 index. These sub-indices included the following questions:

• What benefits are retirees receiving now?

• Can the systems continue to deliver, despite demographic and financial challenges?

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• Are the private pension plans regulated in a way that encourages community confidence?

In the latest study, Netherlands topped the list with 84.8 score, followed by Iceland 83.4 and Denmark at 81.6. The bottom three is India 44, Argentina 45.5 and the Philippines 45.8.

The countries were graded between A and E. India got D, which means the system has desirable features and weaknesses and without improvement, its efficacy and sustainability are in “doubt”.

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India’s Score For Retirement System

India scored 34.2 in adequacy, 44.9 in sustainability, and 58.4 in integrity, with an overall 44 in the 2024 study. The average score of all countries on these sub-indices were 64.9 in adequacy, 54.5 in sustainability, and 74.2 in integrity. India’s lower score was due to the decrease in the net pension replacement rate, which shows the adequacy of retirement income in percentage compared to an individual’s pre-retirement income.

Like other countries, India is moving away from a defined pension to a defined contribution system. The current pension systems, the employees’ provident fund (EPF) and the National Pension System (NPS) are both based on defined contributions.

Commenting on the findings, Margaret Franklin, President and CEO of CFA Institute, said, “Traditional defined benefit plans, once a mainstay of retirement security, continue to be replaced by defined contribution plans, shifting the burden of risk from employers to individuals. This shift has introduced a host of new challenges, including investment risk, inflation risk, and longevity risk, all of which now fall squarely on the shoulders of retirees in defined contribution plans, who often lack sufficient financial literacy.”

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The report also suggests measures to improve the retirement income system. For India, it recommends the following:

• Introduce a minimum support to the poorest aged people

• Pension coverage for unorganised working class

• Introduce a minimum access age to preserve benefits for retirement purposes

• Work on improving regulatory requirements for a private pension system

Why Do We Need A Robust Retirement Income System?

United Nations World Population Prospects 2024 report notes that by 2080, there will be more seniors aged 65 and above than children under 18 years. Pat Tomlinson, president and CEO, Mercer, says, “In a world where fertility rates are falling and life expectancy is rising, retirement income systems are center stage. Ensuring strong alignment in private and public retirement income arrangements, increasing employee coverage, and encouraging higher labor force participation for those who wish to work at older ages are a few ways to improve long-term outcomes for retirees."

David Knox, lead author and senior Partner at Mercer, states, “There is no single solution to getting retirement systems onto more solid ground. Now is the time for governments, policymakers, the pension industry and employers to work together to ensure that older populations are treated with dignity and can maintain a lifestyle similar to what they experienced through their working years.