A recent Mercer–CFA Institute Global Pension Index (GPI) 2025 report has raised serious concerns about India’s retirement security system. According to the report, less than 25 % of India’s workforce is covered under formal pension or provident-fund schemes such as the Employees’ Provident Fund Organisation (EPFO), Atal Pension Yojana (APY), and the National Pension System (NPS).
Despite India’s growing working-age population, the report highlights that the majority of workers—especially those in the informal and gig sectors—remain outside any structured retirement benefit system. As a result, millions of Indians may face economic insecurity in old age.
Detailed Analysis
- India’s Rank and Score
- India ranks 45th out of 47 countries in the Global Pension Index 2025.
- The overall score is 43.8 / 100, which corresponds to a Grade “D”—indicating major weaknesses that need urgent reforms.
- Coverage Status
- Only one in four Indian workers is enrolled in a formal pension scheme (EPFO, NPS, or APY).
- Informal, self-employed, and gig-economy workers—who form nearly 80 % of India’s workforce—are largely excluded.
- Even within the covered population, frequent withdrawals from EPF accounts and low contribution levels reduce the adequacy of retirement savings.
Key Weaknesses Highlighted
- Low Coverage: Less than 25 % participation in pension systems.
- Poor Adequacy: Low monthly pensions, e.g., ₹1,000–₹2,000 under EPS, are insufficient for living costs.
- Sustainability Challenges: Pension assets remain below 10 % of GDP, much lower than global peers.
- Regulatory Fragmentation: EPFO and NPS operate under separate ministries, causing policy inconsistency.
- Limited Investment Options: Pension funds face rigid investment restrictions, curbing long-term growth.
Recommendations from Mercer
- Expand pension coverage to informal and gig-sector workers.
- Introduce a minimum guaranteed pension for all retirees.
- Discourage premature withdrawals from EPF/NPS accounts.
- Allow greater diversification of pension investments into equities and infrastructure.
- Improve regulatory coordination, transparency, and digital inclusion.
- Promote financial literacy and awareness about retirement planning.
Advantages / Pros of India’s Pension System
- Multiple Scheme Options: India has a diverse pension framework — EPFO for salaried employees, NPS for government/private sector, and APY for informal workers. This offers a multi-tiered structure catering to different workforce categories.
- Government Backing: All three major schemes — EPFO, NPS, and APY — are government-regulated, ensuring credibility, protection of members’ funds, and a guaranteed framework for long-term savings.
- Steady Asset Growth: Despite low coverage, pension assets have been growing steadily, driven by increasing NPS adoption among private-sector employees and rising awareness about retirement planning.
- Tax Benefits: Both EPF and NPS provide tax deductions under Section 80C and 80CCD of the Income Tax Act, incentivising voluntary participation.
Disadvantages / Cons of India’s Pension System
- Very Low Coverage (< 25 %): The most serious drawback — less than one-fourth of India’s workforce is covered under formal pension systems, leaving the majority unprotected in old age.
- Informal Sector Exclusion: Over 80 % of workers in the informal or gig economy have no access to EPFO or NPS, highlighting deep inequality in retirement protection.
- Inadequate Pension Benefits: Even for those enrolled, pensions are too low to sustain post-retirement life.
Example: EPFO’s minimum pension of ₹1,000 per month is far below living expenses.
- Fragmented Regulation: Different schemes fall under different ministries — EPFO under Labour and NPS under Finance — creating policy gaps and coordination issues.
- Rigid Investment Rules: Conservative investment patterns and restrictions on equity exposure limit fund growth, reducing long-term returns compared with global peers.
Conclusion
India’s pension landscape stands at a crucial turning point. The Mercer–CFA report makes it clear that while India has the right building blocks—EPFO, NPS, and APY—the coverage, adequacy, and sustainability of these schemes remain far below global standards.
With the population ageing and the informal workforce expanding, urgent reforms are essential to ensure that every worker has a reliable source of income in old age. Strengthening governance, encouraging long-term savings, and expanding pension access to the informal sector can transform India’s system from “alarming” to “inclusive and sustainable.”
FAQs
1. What is the Global Pension Index (GPI)?
Ans: The GPI, developed by Mercer and the CFA Institute, is an annual study that evaluates the quality, sustainability, and integrity of pension systems in 47 countries.
2. What is India’s rank in the 2025 GPI?
Ans: India ranks 45th out of 47 with a score of 43.8, receiving a grade “D.”
3. What does “under 25 % coverage” mean?
Ans: It means fewer than one-fourth of India’s total workforce is covered by formal pension schemes such as EPFO, NPS, or APY.
4. Why is India’s coverage so low?
Ans: Because over 80 % of Indian workers are employed in the informal sector, where formal retirement benefits are not mandatory or enforced.
5. Which schemes are evaluated in the report?
Ans: The major schemes considered include EPFO, NPS, and APY.
My self Anita Sahani. I have completed my B.Com from Purbanchal College Silapathar. I am working in Dev Library as a Content Manager. A website that provides all SCERT, NCERT 3 to 12, and BA, B.com, B.Sc, and Computer Science with Post Graduate Notes & Suggestions, Novel, eBooks, Health, Finance, Biography, Quotes, Study Materials, and more.
