Moves like tax incentives for
participation in the National Pension System and introduction of the
Universal Account Number (UAN) for the Employees’ Provident Fund (EPF)
have resulted in improvement in India’s index value in the Melbourne
Mercer global pension index.
The index is published by the Australian Centre for Financial Studies in collaboration with Mercer, a consulting firm.
The index value for India has improved
from 40.3 in 2015 to 43.4 in 2016 primarily due to an increase in the
net replacement rate. This is a measure for adequacy of post-retirement
income.
The rate is the percentage of an
employee’s post-tax, pre-retirement income that is paid through
post-tax, post-retirement annuities. In comparison, China ranked 23rd
with an index value of 45.2.
Anil Lobo, India business leader,
retirement, Mercer, said that the government’s Atal Pension Yojana,
which was launched in 2015, has also contributed in increasing coverage
for pension among workers in the unorganised sector.
Moreover, the UAN for EPF has
eased transfer, traceability of transfer of provident fund under
statutory pension plan. “Implementation of UAN ensures avoiding
unnecessary leakage from the pension fund and allows withdrawal of
pension accumulation under statutory plan only on certain specified
compelling grounds. Also, the government has increased the pension age
from 58 years to 60 years under statutory pension plan EPS 95, which
offers regular stream of income on retirement,” Lobo said.
However, as per the rankings based on
the index, India is on the 25th position out of 27 countries, ahead of
only Japan and Argentina.
Denmark and the Netherlands topped the
rankings with index values of 80.5 and 80.1, respectively. According to
the study, among the sub-indices, India has an index value of 39.5 for
adequacy, 40.9 for sustainability, and 53.4 for integrity.
The study also highlights that ageing
populations will present challenges in the near future with longer life
expectancies combined with global declining birth rates.
Sandip Shrikhande, chief executive
officer, Kotak Mahindra Pension Fund, said that in India too, a fast
ageing population along with a major unorganised sector is a challenge.
“The number of Indians over the age of
60 has hit an all-time high of almost 9% of the total population, which
is around 100 million.
It is expected that by 2020 around 150
million people will be in the 60-plus age group and will need some
access to formal pension,” he said.
According to the index value for India
as defined by the study, the pension system has some desirable features,
but also has major weaknesses. It suggests that the Indian pension
system can be improved with introduction of a minimum level of support
for the poorest aged individuals, improving coverage for unorganised
working class and improving regulatory requirements for the private
pension system, among others.
Shrikhande said worldwide pension
coverage is much larger mainly due to high level of awareness amongst
subscribers due to high literacy and large part of the workforce being
in organised sector and strong government support by way of social
security and mandatory coverage.
He also said the biggest improvement
that is being attempted in India is of bringing the unorganised sector
under pension coverage.
“The Atal Pension Yojana, which provides
monthly pension from Rs1,000 to Rs5,000, is a good initiative. Since
its launch it has already enrolled around 20 million members and
mobilised Rs1,255 crore,” he said.
Shrikhande added that the pension coverage needs to be extended on a larger scale and at a much faster pace.
“As highlighted 90% of the workforce is
in unorganised sector and majority in rural areas and reaching out to
them is a big challenge,” Shrikhande said.
Source: livemint
