India’s Pension Coverage Alarmingly Low, Mercer Report Flags Systemic Gaps

A recent Mercer–CFA Institute Global Pension Index 2025 report highlights that India’s pension system covers less than a quarter of the workforce. Schemes like the Employees’ Provident Fund Organisation (EPFO), National Pension System (NPS), and Atal Pension Yojana (APY) have low reach, leaving millions of workers, especially in informal and gig sectors, without retirement security.

India’s Global Pension Ranking

India ranks 45th out of 47 countries, retaining a ‘D’ grade with an overall score of 43.8, slightly down from 44 in 2024. The decline reflects challenges in sustainability, inclusiveness, and resilience to demographic and climate pressures. India’s pension system now sits among the weakest globally, alongside Türkiye, Argentina, and the Philippines.

Key Weaknesses of the Pension System

The report assessed 44 parameters and identified three major gaps:

• Adequacy (‘E’ grade): Retirees earn far less than their needs.
• Sustainability (‘D’ grade): Pension assets are small relative to GDP, raising funding risks.
• Integrity (‘C’ grade): Regulation and governance are uneven across agencies.

Other systemic flaws include no minimum guaranteed pension, premature EPF withdrawals, restrictive investment rules, and fragmented oversight between EPFO (Labour Ministry) and PFRDA (Finance Ministry).

Read More, NPS Rule Changes From October 1: 100% Equity Option, Flexible Withdrawals, and Multiple Schemes!

Recommended Reforms

Mercer suggests expanding coverage to informal workers, introducing minimum pension guarantees, enforcing withdrawal age limits, improving fee transparency, and allowing funds more flexibility to invest in growth assets. Such measures could potentially double India’s pension assets-to-GDP ratio within a decade.

Conclusion

India’s pension system needs urgent reform to ensure financial security for future retirees. Expanding coverage, improving governance, and enabling smarter investments are essential to create a robust and sustainable retirement framework.

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