India improves upon its pension provision

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Published: October 28, 2019 12:07:53 AM

Indian pension system hit the highest Melbourne Mercer Global Pension Index (MMGPI) value since 2011, marginally higher than 2018

Given the demographic diversity and the large percentage of workforce in the unorganised sector, reforms in the pension system will take time to manifest themselves. (Illustration: Shyam Kumar Prasad)Given the demographic diversity and the large percentage of workforce in the unorganised sector, reforms in the pension system will take time to manifest themselves. (Illustration: Shyam Kumar Prasad)

Greater flexibility in managing retirement, steady progress in governance and reporting around private pension plans and improvement in net household savings have enabled the Indian pension system to hit the highest Melbourne Mercer Global Pension Index (MMGPI) value since 2011, marginally higher than 2018 in all the three sub-indices of adequacy, sustainability and integrity.

The eleventh annual Melbourne Mercer Global Pension Index, comparing 37 retirement systems, expanded to cover almost two-thirds of world population. The Netherlands and Denmark retain first and second place, respectively. India inched up in the overall index as compared to 2017 and 2018 because of efforts taken by the government to introduce New Pension System.

The forward-looking development of draft wages and social security reforms that have been initiated by the government, indicates that the intent of the policymakers is in creating an inclusive and sustainable pension system.

Preeti Chandrashekhar, India business leader, Health & Wealth, Mercer, says that India Inc. understands the importance of financial wellness and the need to encourage employees to build a retirement corpus. “With the general trend moving towards defined contribution voluntary plans, companies are focusing on building awareness among employees on the need to save towards retirement. Enhanced communication and awareness should increase engegement and greater participation in pension arrangements in the organised sector,” she says.

The government launched Atal Pension Yojana (APY) in 2015, which is available to all citizens below the age of 40 years in the unoragnised sector to save voluntarily before retirement. As on August 31, 2019, there are 1.78 crore subscribers in APY. The government has also introduced three new schemes for different segments of workers in the unorganised sector—PM Karam Yogi Maan-Dhan Scheme for retailers and shopkeepers, PM Kisan Pension Yojana for small and marginal farmers and Pradhan Mantri Shram-Yogi Maan Dhan for workers in the unoragnised sector.

Given the demographic diversity and the large percentage of workforce in the unorganised sector, reforms in the pension system will take time to manifest themselves. The MMGPI value can further be enhanced by complementing reforms with greater participation of the organised sector in supplemental pension plans.

NPS drives
A pure defined contribution pension product, NPS was introduced in 2004 for government employees and, in 2009, was extended to all private sector employees. NPS got a big push in the 2015 Budget when the government allowed tax benefit on investment of up to Rs 50,000 a year in NPS under Section 80CCD, which is above the benefit available on Rs 1.5 lakh under Section 80C. In order to bring in parity in tax treatment for all retirement products, the government made maturity withdrawals from NPS completely tax-free.

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