OECD Report Flags India's Pension System: High 39% Old-Age Poverty Rate Underlines Adequacy Crisis
SDG 1: No Poverty | SDG 8: Decent Work and Economic Growth
Institutions: Ministry of Finance | Pension Fund Regulatory and Development Authority (PFRDA)
The OECD’s Pensions at a Glance 2025: OECD and G20 Indicators report provides a comprehensive analysis of global pension systems across OECD and G20 countries. It highlights the structural gaps challenging the financial security of India’s aging population. The analysis confirms that India’s retirement income system faces severe challenges related to Adequacy, Coverage, and Sustainability.
The Net Pension Replacement Rate (NRR) is a key metric that measures an individual’s net income in the first year of retirement (pension benefits minus taxes) as a percentage of their net income earned in the year prior to retirement. It is the primary indicator used globally to assess the adequacy of pension systems. India’s Net Replacement Rate is 44.6% for an average earner, significantly below the OECD average of 63.2%, signaling insufficient post-retirement income.
Quantified Challenges for India
Adequacy & Poverty: India’s low NRR contributes directly to high vulnerability; the old-age income poverty rate is 39.2%, which is substantially higher than the OECD average of 14.8%. The Gross Replacement Rate is only 39.2% (below the OECD average of 52%).
Low Pension Wealth & Coverage: Pension assets in India account for only 13.5% of GDP, contrasting sharply with the average in OECD countries (over 80%). This reflects limited formal coverage, particularly among the vast informal sector.
Retirement Age: India’s current normal retirement age remains 60 years, low compared to the rising global trend (OECD average retirement age is projected to be 66.4 years for new male entrants). Despite a high mandatory contribution rate of 24% (compared to the OECD average of 18.8%), the benefits are not translating into high adequacy.
Recommendations and Policy Directives
The report issues explicit recommendations for India to strengthen its retirement system:
Expand Coverage: Introduce mandatory or auto-enrolment schemes and reduce stringent eligibility conditions to bring the massive unorganized workforce into the formal system.
Address Adequacy: Strengthen first-tier pensions and establish a minimum income floor for the elderly poor to urgently reduce the 39.2% old-age poverty rate.
Gender Disparities: Policy must address the Gender Pension Gap through measures such as childcare-related credits and pension bonuses for women, alongside policies promoting gender equality in employment and wages.
Sustainability & Transparency: Develop long-term strategies to address demographic challenges (declining fertility rates of 1.96 in 2024), improve transparency in fees, and adopt automatic adjustment mechanisms to align pensions with demographic and economic changes.
Policy Relevance
The OECD’s comprehensive data confirms that India’s policy focus must shift from simply generating assets to ensuring equitable and adequate retirement income for its rapidly aging population. The high mandatory contribution rate combined with low replacement and high poverty rates signals inefficiencies in scheme design and distribution that necessitate urgent and holistic structural reform.
Follow the full report here: Pensions at a Glance 2025: OECD and G20 Indicators