India’s pension safety net remains alarmingly narrow, with the Employees’ Provident Fund Organisation (EPFO), National Pension System (NPS), and government-backed schemes like the Atal Pension Yojana (APY) together covering less than 25% of the workforce — one of the lowest inclusion rates globally. A new Mercer–CFA Institute Global Pension Index 2025 report has flagged this limited reach, pointing to low coverage, inadequate benefits, rigid investment norms, and weak regulatory oversight as the country’s biggest pension challenges.

As India’s working-age population grows rapidly, experts warn that the absence of a robust, universal retirement framework could leave millions without financial security in old age.

According to the Mercer–CFA Institute Global Pension Index 2025, India ranks 45th out of 47 countries, retaining a ‘D’ grade with an overall score of 43.8, down slightly from 44.0 in 2024. The decline reflects limited progress in improving sustainability and inclusiveness, along with new metrics assessing resilience to demographic and climate pressures. India’s pension system now sits among the world’s weakest — alongside Türkiye, Argentina, and the Philippines.

“India’s pension system has some good features but also major weaknesses that need to be addressed urgently,” the report noted. Without structural reform, it warned, future retirees could face serious financial insecurity, particularly those employed in the informal or gig economy.

The Supplementary Report 2025, which evaluates 44 parameters, found that India’s pension system lags in three critical pillars:

Adequacy (‘E’ grade): Retirees receive incomes far below their needs.

Sustainability (‘D’): Pension assets remain small relative to GDP, raising funding risks.

Integrity (‘C’): Regulation and governance are modest but uneven across agencies.

Among the biggest flaws:

No minimum guaranteed pension for low-income citizens.

Premature EPF withdrawals that deplete retirement savings.

Tight investment restrictions preventing higher long-term returns.

Fragmented regulation between EPFO under the Labour Ministry and PFRDA under the Finance Ministry.

Mercer recommends a roadmap to strengthen India’s retirement ecosystem: introducing a minimum pension guarantee, expanding coverage to informal and gig workers, enforcing withdrawal age limits, improving fee transparency, and granting funds more flexibility to invest in growth assets.

“Extending coverage and diversifying investments could double India’s pension assets-to-GDP ratio within a decade,” said David Knox, Senior Partner at Mercer. “Reforms must balance safety, affordability, and sustainability.”

Globally, Singapore topped the 2025 index with a score of 86.0, followed by the Netherlands (84.9) and Iceland (83.8) — countries that combine universal coverage with sound regulation. In contrast, India remains clustered near the bottom alongside Türkiye, Argentina, and the Philippines.

Source:  businesstoday

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