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India's savings for retirement and income has slipped since 2011. The Melbourne Mercer Global Pension Index value has gone down to 42.4 this year from 43.4 in 2011, but its global ranking stays constant at 18. The index value fell mainly due to the introduction of Worldwide Governance Indicators.
Arvind Usretay, Retirement Risk Finance - Business Leader, Mercer India says, "India does not have a social security system. A large number of elderly Indians are not covered by any pension scheme. Pension reform would not only enhance retirement security of citizens but also help the central and state governments to cut their future liabilities."
The Melbourne Mercer Global Pension Index is produced by Mercer and the Australian Centre for Financial Studies and funded by the Victorian State Government. It is now in its fourth year and has grown from 11 to 18 countries. It looks at both the publicly funded and private components of a system as well as personal assets and savings outside the pension system. Each country is given a score between 0 and 100. It is based on more than 40 indicators grouped into three sub-indices: adequacy, sustainability and integrity.
A score of 35-50 shows that the system has some good features, but also has major risks or shortcomings that should be addressed. Denmark received an index value of 82.9 to be graded 'A', removing Netherlands from the top position.
Mercer's senior partner and author of the report, David Knox, says, "Many of the world's retirement systems are under increasing stress with an ageing population, low investment returns and, in some cases, significant government debt. Reform is needed to ensure that adequate benefits are provided over the long term in a sustainable manner."
Knox comments on the asset allocation of pension funds around the world. He notes that the exposure to growth assets (equities and property) ranges from zero in some countries to more than 70% in Australia. "There is no single answer to the best asset allocation. However, a diverse range of assets across the system is likely to provide a better outcome than heavy concentration in bonds or equities," he says.
Usretay feels India could adopt several measures to enhance retirement benefits for citizens like introducing a minimum support level for the poorest aged individuals, a mechanism to increase the pension age as life expectancy continues to increase and increase contribution in statutory pension scheme.
Weightings used for index value are: 40 per cent for the adequacy sub-index; 35 per cent for the sustainability sub-index; 25 per cent for the integrity sub-index. The countries that do well in adequacy have an above average base pension to relieve poverty; a good net replacement rate for the median income earner, a system that requires the benefits to be taken as an income stream, and other desirable features.
The countries that do well in sustainability have good pension coverage (through some form of compulsion or auto-enrolment); a high level of pension fund assets compared to GDP; a level of mandatory contributions, and a relatively low level of government debt.
Several countries do well with integrity due to the presence of comprehensive regulations ensuring good governance and providing good communication to members.
Photograph: Darren Staples/Reuters
