The Melbourne Mercer Global Pension Index value of India has gone down to 42.4 this year from 43.4 in 2011, but India’s global ranking has stayed constant at 18. The index value fell mainly due to the introduction of worldwide governance indicators.
India does not have social security system. A large number of elderly Indian’s 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 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.
The 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 the author of the report, David Knox has said that many of the world’s retirement systems are under increasing stress with an aging 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.
Mercer also notes that the exposure of pension funds across the world to growth assets like property and equities ranges from zero in some countries to more than 70% in Australia. As per Mercer, system can provide better returns if it is diversified. It should not be heavily concentrated on bonds or equities.
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 the index value are: 40% for the adequacy sub-index; 35% for the sustainability sub-index; 25% 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-enrollment); 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.
No comments:
Post a Comment