India’s retirement system has improved to some extent from 2022, according to Mercer CFA Institute Global Pension Index (MCGPI) survey 2023. The survey shows India had an overall index value of 45.9, up from 44.5 in 2022, ranking 45 out of the 47 retirement income systems analysed.
The improvement was primarily due to progress in adequacy and sustainability sub-indices, the report said.
By the numbers
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). Although the Netherlands is currently undertaking significant pension reform, the system is well-positioned to provide excellent benefits amid the move from a collective benefit structure to a more individual-defined contribution approach.
Here's the full list:
System | Overall Grade | Total | Adequacy | Sustainability | Integrity |
Netherlands | A | 85.0 | 85.6 | 82.4 | 87.7 |
Iceland | A | 83.5 | 85.5 | 83.8 | 80.0 |
Denmark | A | 81.3 | 82.5 | 82.5 | 77.8 |
Israel | A | 80.8 | 77.0 | 82.7 | 84.4 |
Australia | B+ | 77.3 | 70.7 | 78.4 | 86.1 |
Finland | B+ | 76.6 | 77.4 | 65.6 | 90.9 |
Singapore | B+ | 76.3 | 79.8 | 71.6 | 77.0 |
Norway | B | 74.4 | 79.4 | 59.1 | 87.8 |
Sweden | B | 74.0 | 72.1 | 75.6 | 75.0 |
UK | B | 73.0 | 77.3 | 62.7 | 80.6 |
Switzerland | B | 72.0 | 69.6 | 70.6 | 77.9 |
Canada | B | 70.2 | 71.1 | 64.5 | 76.7 |
Ireland | B | 70.2 | 77.1 | 54.4 | 81.1 |
Chile | B | 69.9 | 60.0 | 71.3 | 84.0 |
Uruguay | B | 68.9 | 84.0 | 46.2 | 76.5 |
Belgium | B | 68.6 | 82.0 | 39.4 | 88.2 |
New Zealand | B | 68.3 | 65.6 | 64.3 | 78.3 |
Portugal | B | 67.4 | 86.7 | 32.0 | 85.9 |
Germany | B | 66.8 | 79.8 | 45.3 | 76.3 |
Kazakhstan | C+ | 64.9 | 46.9 | 74.8 | 80.0 |
Hong Kong SAR | C+ | 64.0 | 51.9 | 61.1 | 87.6 |
USA | C+ | 63.0 | 66.7 | 61.1 | 59.5 |
UAE | C+ | 62.5 | 72.2 | 45.4 | 70.8 |
Colombia | C+ | 61.9 | 62.9 | 55.4 | 69.3 |
France | C+ | 61.7 | 84.5 | 40.9 | 54.4 |
Spain | C+ | 61.6 | 79.7 | 28.5 | 79.2 |
Croatia | C+ | 60.3 | 57.1 | 56.0 | 71.4 |
Saudi Arabia | C | 59.5 | 61.5 | 54.9 | 62.9 |
Poland | C | 57.6 | 59.8 | 45.4 | 71.2 |
Japan | C | 56.3 | 59.2 | 46.5 | 65.6 |
Italy | C | 56.3 | 72.7 | 23.7 | 75.9 |
Malaysia | C | 56.0 | 44.3 | 56.1 | 74.6 |
Brazil | C | 55.7 | 70.4 | 28.5 | 70.1 |
Peru | C | 55.5 | 55.0 | 50.4 | 63.5 |
China | C | 55.3 | 64.2 | 39.0 | 63.7 |
Mexico | C | 55.1 | 63.5 | 58.4 | 37.0 |
Botswana | C | 54.5 | 39.8 | 52.8 | 80.6 |
South Africa | C | 54.0 | 44.2 | 49.1 | 76.6 |
Taiwan | C | 53.6 | 47.6 | 52.9 | 64.1 |
Austria | C | 52.5 | 66.8 | 22.6 | 71.6 |
Indonesia | C | 51.8 | 41.6 | 50.6 | 69.8 |
Korea | C | 51.2 | 39.0 | 52.7 | 68.5 |
Thailand | D | 46.4 | 45.4 | 42.2 | 53.9 |
Turkey | D | 46.3 | 46.5 | 31.1 | 67.3 |
India | D | 45.9 | 41.9 | 43.0 | 56.5 |
Philippines | D | 45.2 | 41.8 | 63.2 | 25.7 |
Argentina | D | 42.3 | 56.3 | 29.5 | 37.8 |
(Source: Mercer CFA Institute Global Pension Index)
The Index uses the weighted average of the sub-indices of adequacy, sustainability, and integrity. For each sub-index, the systems with the highest values were Portugal for adequacy (86.7), Iceland for sustainability (83.8), and Finland for integrity (90.9). The systems with the lowest values across the sub-indices were South Korea for adequacy (39.0), Austria for sustainability (22.6), and the Philippines for integrity (25.7).
Falling birth rates have placed pressure on several economies and
pension systems over the longer term, negatively affecting the sustainability scores of countries like Italy and Spain. Several Asian systems, however, including mainland China, Korea, Singapore, and Japan, have undertaken reform to improve their scores in the last five years, the report said.
About India's retirement system
India’s retirement income system comprises an earnings-related employee pension scheme, a define contribution (DC) employee provident fund (EPFO) and supplementary employer-managed pension schemes that are largely DC in nature. Government schemes have been launched as part of the universal social security programme aimed at benefiting the unorganised sector.
Preeti Chandrashekhar, India Business Leader at Mercer – Health and Wealth, stated, “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%)."
Chandrashekhar said that given India does not have a mandated public pension plan with contributions linked to earnings that aim at replacing some pre-
retirement income, a social security system that increases coverage of the unorganised workforce as well as the self-employed would improve the efficacy of the system.
“There is a growing focus on making India a fully 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.
According to Arati Porwal, Country Head, India, CFA Institute, the rapid development of AI technology presents meaningful opportunities for pension reforms to move forward.
"For example, AI can enable more dynamic financial decisions by more engaged participants, thereby increasing retirement financial security. It can also empower plan fiduciaries to deliver better retirement outcomes. In India, the elderly population is predicted to double to one-fifth of the total by 2050. Given our demographic trends and the fact that most of the population lacks formal social security, using AI for data analysis, scenario planning, and communication to manage the retirement transition effectively, represents an opportunity for policymakers,” Porwal said.
The growing impact of AI and its benefits to members
In addition to identifying the world’s top pension systems, the report examines the potential of artificial intelligence (AI) to improve pension and social security systems and provide people with a better quality of
life in retirement.“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,” said David Knox, Senior Partner at Mercer and lead author of the study.
The report, however, makes clear that AI is not without risks, including modelling challenges and ethical concerns as well as the need for optimal data privacy and cybersecurity. In developing these systems, it is essential that AI models have strong governance and clear accountability to reduce biases and unjustified responses. Safeguards are critical for pension plans to retain their members’ long-term trust.
“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,” Knox said.