India Improves Score To 45.9 In Mercer CFA Global Pension Index

India has improved its overall score to 45.9 in the Mercer CFA Institute Global Pension Index, 2023. However, it has ranked 45th out of the 47 retirement systems surveyed globally

Outlook Money
October 18, 2023
Pension Index

Pension Index

India has improved its overall score on the pension index from 44.4 in 2022 to 45.9 in 2023, according to the 15th annual Mercer CFA Institute Global Pension Index (MCGPI) released on October 17, 2023.


The index covered 47 retirement systems, or say, countries, and ranked India at the 45th place. This annual pension index report examines the retirement systems of countries across the world, highlights issues in their retirement systems, and the possible areas of reforms that these countries can look into to improve their citizens’ retirement lives.

The Netherlands topped the rankings with an overall score of 85, followed by Iceland and Denmark, with overall scores of 83.5 and 81.3 score, respectively. Argentina scored 42.3 overall, the least of all retirement systems included in the study. The study covers around 64 per cent of the world’s population through the retirement income system.

The index examined the retirement systems of 47 countries under three sub-indices, namely, adequacy, sustainability, and integrity. India’s overall score has improved due to improvement in the first two parameters, adequacy and sustainability. It indicates that there is improvement in the pension system in India in terms of adequacy that is providing a minimum basic support, and sustainability by bringing more people within the pensionable umbrella by encouraging pension schemes for the private and the unorganised sectors.

Key Findings Of The Report

According to the report, the falling birth rate means more pressure on the pension system in several economies in the long term. It indicates that to serve pensions to people after a certain age, there need to be enough people in the earning age group. A falling birth rate means that in the long term, there would be less number of young people who would be in the earning age group, and a higher number of pensioners would mean pressure on the government pension system.

It would also negatively affect the sustainability score. For instance, Italy and Spain are facing this issue, according to the report.

Considering this issue, several countries have taken reformative measures in the last few years to improve their scores, such as mainland China, Singapore, Japan, and Korea, the report said.

The report also explored today’s most famous phenomenon, artificial intelligence (AI), in the pension and social security system as a tool for a ‘better quality of life in retirement’.

Dr. David Knox, senior partner at Mercer and lead author of the study said: “The ongoing expansion of AI within the operations and decisions of investment managers could lead to more efficient and better-informed decision-making processes, which could potentially lead to higher real investment returns to pension plan members.”

“AI also has the potential to improve member-engagement and help individuals make long-term decisions about their financial decisions. But AI by itself is not the complete answer. There will always be a need for human oversight. Despite these risks, AI has the opportunity to deliver a higher standard of living in retirement — a worthwhile objective for all pension systems,” he added.

What Does India’s Ranking And Score Mean?  

India’s ranking has slipped from 41 out of 44 countries in 2022, to 45 out of 47 countries in 2023, but the overall score has improved by 1.5 points to 45.9 in 2023.

Year Overall score Sub Index
Adequacy Sustainability Integrity
2022 44.4 37.6 40.7 60.4
2023 45.9 41.9 43.0 56.5

India’s retirement system comprises the ‘earning-related pension scheme, i.e., the defined contribution (DC), such as employees’ provident fund (EPF), or other employer-managed pension schemes. But these are mostly contributory in nature.

Preeti Chandrashekhar, health and wealth, India Business Leader, Mercer, said: “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).”

Even after several initiatives, the coverage under the pension system is quite low in India. The workforce in the unorganised sector and the self-employed category are particularly out of the pension system. So, more awareness about the schemes, encouraging savings for retirement, and reforms in the schemes could be crucial measures to extend the scope of pension coverage in the country.

The adequacy and sustainability can also be improved by offering better coverage to people in the private and unorganised sectors. Also, regulatory reforms can be used to provide security by private pension plans. These developments can further increase India’s score on the third sub-index, Integrity, and thus the overall score.

“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, and 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,” Chandrashekhar added.

So, while there is improvement in India’s pension index performance, there is still ‘more opportunity’. The only requirement is to start planning for retirement in the work years and invest in the schemes even if it is not mandated by the government.

Says Margaret Franklin, CFA, president and CEO, CFA Institute: “More and more often, individuals will have an increasingly important role to play, as it relates to their own retirement. Each year, this index serves as a critical reminder that there is a long way to go in many jurisdictions to make pension plans function at their best and for the long-term financial security of the beneficiaries.”

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