What numbers reveal: Why India's pension system is among bottom 3 globally

The Mercer report has flagged limited coverage of informal workers, poor adequacy, and regulatory fragmentation as key challenges for India's pension framework

India’s pension system remains among the weakest globally, ranking 45th out of 47 countries in the Mercer–CFA Institute Global Pension Index 2025, according to the supplementary analysis released alongside the main report.  The findings expose deep structural flaws in India’s retirement framework — from low coverage and inadequate benefits to weak regulation and rigid investment rules.  According to the Mercer–CFA Institute Global Pension Index 2025, India has been graded 'D', placing it among the bottom three globally, alongside Türkiye, Argentina, and the Philippines. The study says these countries have “some desirable features but major weaknesses that need urgent attention.”

 

The Supplementary Report 2025, which breaks down scores across 44 key parameters, gives India an overall value of 43.8 (Grade D), a marginal dip from 44.0 in 2024. The decline, Mercer said, is largely due to new sustainability questions that evaluate a system’s resilience to demographic and climate-related pressures. 

 

“India’s pension system has some good features but also major weaknesses that need to be addressed urgently,” the report noted. “Without reforms, future retirees may face financial insecurity in old age.”

 

India’s retirement income system comprises a mix of defined-benefit and defined-contribution schemes, including the Employees’ Provident Fund Organisation (EPFO), the National Pension System (NPS), and employer-managed funds. Government schemes such as Atal Pension Yojana (APY) and PM-SYM attempt to extend coverage to informal workers.

 

However, India’s pension architecture covers less than 25 per cent of its workforce, among the lowest globally. Pension assets remain modest relative to the gross domestic product (GDP), restricting the system’s sustainability. The supplementary report flags that limited real returns, low participation, and early withdrawals undermine retirement adequacy.   

India’s Ranking and What It Means

 

India’s overall index score slipped slightly to 43.8 in 2025 from 44 last year, showing little progress in strengthening its retirement system. The report assessed 52 countries based on three core pillars:

 

Adequacy – how much income retirees receive after they stop working (40 per cent weight)

 

Sustainability – how long the pension system can remain financially viable (35 per cent)

 

Integrity – the strength of governance, regulation, and transparency (25 per cent)

 

India’s weakest link was adequacy, which received a grade 'E', meaning most retirees get incomes far below their needs. The sustainability score stood at 'D', while integrity, reflecting regulation and governance, fared slightly better at 'C'. 

 

India’s Sub-Index Scores (2025) 

(Source: Mercer–CFA Institute Global Pension Index 2025, Supplementary Report)

 

Key weaknesses highlighted in the report:

 

• No minimum guaranteed pension for the poorest aged citizens.

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Low formal coverage, especially in the unorganised and gig sectors.

 

Premature withdrawals from EPF accounts, eroding savings before retirement.

 

Tight investment restrictions, limiting pension funds’ access to growth assets.

 

Weak regulatory oversight across EPFO, NPS, and private funds.

 

Limited tax incentives for voluntary pension contributions.

 

These weaknesses keep India among the bottom five globally, alongside the Philippines, Thailand, Argentina, and Türkiye. 

Where India’s pension system falls short

 

Mercer’s report highlights four major gaps that keep India at the bottom of the global ranking:

 

No minimum pension guarantee: India lacks a nationwide income floor to protect the poorest senior citizens.

 

Low coverage: Less than a quarter of the workforce participates in formal pension schemes like EPFO or NPS, leaving the vast unorganised sector unprotected.

 

Weak asset growth: Pension savings as a percentage of GDP remain low compared with other countries, limiting the system’s financial depth.

 

Fragmented regulation: India’s pension ecosystem is split between the EPFO under the labour ministry and the PFRDA under the finance ministry, leading to uneven oversight and policy coordination.

 

Recommendations to strengthen India’s pension system

 

The Mercer–CFA Institute report suggests a roadmap for reform:

 

• Introduce a minimum pension guarantee for the elderly poor.
• Expand coverage to the unorganised and gig economy.
• Enforce a minimum access age to preserve funds for retirement.
• Improve private pension regulation and fee transparency.
• Allow greater investment flexibility to enhance long-term returns.

 

“Extending coverage and diversifying investments could double India’s pension assets-to-GDP ratio within a decade,” said David Knox, Senior Partner at Mercer. “But reforms must balance safety, affordability, and sustainability.”

 

Global snapshot: The best and worst

 

Globally, Singapore topped the 2025 index with a score of 86.0, followed by the Netherlands (84.9) and Iceland (83.8). These nations combine universal participation with good governance and sustainable funding.

 

By contrast, India’s fragmented multi-pillar system scored among the lowest on adequacy and sustainability. Still, the report notes progress in expanding digital access to NPS and government micro-pension schemes.

 

India vs regional peers 

 

India’s score has hovered between 43 and 45 for the past five years, indicating limited improvement despite new schemes. Regional peers like China and Indonesia have made modest gains through policy expansion and digital inclusion. 

"India’s pension system ranked the lowest among 52 countries in the 2025 Mercer–CFA Institute Global Pension Index. The report attributes this to persistent issues such as low pension adequacy, limited access for informal sector workers, and minimal participation in voluntary retirement savings schemes. With over 80% of the workforce in the informal economy, a large segment of the population remains outside formal pension coverage. Additionally, weak regulatory oversight, lack of inflation-linked benefits, and concerns over long-term fiscal sustainability continue to undermine the system’s overall effectiveness," said Rohit Jain, Managing Partner, Singhania & Co.

 

The Supplementary Report explains that the countries scoring the lowest in these sub-indices usually have a principal pension that is less than 30% of the average salary. 

The Supplementary Report explains that the countries scoring the lowest in these sub-indices usually have a principal pension that is less than 30% of the average salary.

 

"The low rank of India is an indicator of inadequate benefits, small coverage, and low levels of preservation and funding of its pension structure," said Jain.

 

  The numbers behind the gap 

India's Economic Survey 2024-25 also made a case for scalability of pension coverage to bring more people under the social security net.

 

Despite significant advancements in the pension sector, just 5.3 per cent of the total population is covered by the NPS and APY combined.

 

"This highlights another critical aspect of the Indian pension system: scalability. Low costs are essential to enhance coverage meaningfully. Achieving this will require highly competitive, low-cost fund management and minimal transaction costs, which is particularly vital for small-ticket transactions," they survey said.  You can read the full report here. 

 

EPF rule change sparks confusion: Members can withdraw 75% on job loss, full payout after 12 months

 

The EPFO recent rule changes have triggered confusion and anger among salaried workers after reports suggested tighter restrictions on fund withdrawals and delayed pension access.

 

Initially, The Wire reported that the EPFO had extended the timeline for final pension withdrawals from 2 months to 36 months, sparking concerns that employees would have to wait up to three years after retirement to access their own savings. The revised framework also required members to retain 25 per cent of their EPF balance until retirement, limiting liquidity even in emergencies.

 

However, following backlash, the EPFO issued a clarification, as reported by The Indian Express, confirming that members who lose their jobs can immediately withdraw 75 per cent of their total EPF corpus. If unemployment continues for 12 months, the remaining 25 per cent can also be withdrawn.

 

The EPFO has also simplified withdrawal categories — earlier divided into 13 heads (like illness, marriage, or education) — into three broad sections: essential needs, housing, and special circumstances. Members can now withdraw funds twice a year under these categories without extra paperwork.

 

Officials argue the changes are meant to protect long-term retirement savings, as nearly half of EPFO members had less than ₹20,000 in their accounts at final settlement due to premature withdrawals. Critics, however, say the new structure may hurt workers facing financial distress, especially those in unstable employment.