Pension is a regular (normally monthly) payment that a person gets when he/she has retired from a job. This regular payment is obtained from an investment fund to which that person, or his/her employer, contributed during the time the person was working.
At a time when you are no longer young enough to work, it is the pension that comes to your aid.
People working in the organised sector, and their employers, contribute to the Provident Fund (which is effectively a retirement fund). Upon a person's retirement, he/she gets the entire sum at one go which can then be used to invest in a scheme that gives monthly income or to build a house or finance a child's wedding or education, etc.
In India, the Pension Fund Regulatory and Development Authority is the prudential regulator for the New Pension Scheme. This scheme promises regular income based on the amount of money you invest in it during the time you are earning.
So which are the nations with the world's weakest pension systems currently?
1. Greece
Greece is home to the weakest national pension system in the world, according to the Allianz Global Investors Pension Sustainability Index.
The index monitors the sustainability of national pension systems in 44 nations across the globe.
Greece, already facing bankruptcy, has an almost unsustainable level of sovereign debt, poor pension take-up, early retirement age and thus an ever increasing number of pensioners that has skewed its economy against the productive/working population.
In other words, Greece has far many more pensioners than working people. The results of this study show Greece to be in the greatest need for reform.
Not only does Greece have the worst ranking within Europe, it yields the highest score of all the countries considered in this study.
At the heart of Greece's deteriorating ranking are acute sovereign debt, a quite serious aging problem and a still generous pension system, despite pension reforms initiated as a condition of IMF and ECB financing initiatives.
2. India
India has the second weakest pension system in the world.
The Pension Sustainability Index systematically examines relevant elements of pension systems in order to measure and evaluate the pressure on governments to reform their national pension systems.
India is under the most reform pressure. Extremely low pension coverage in the country remains the primary challenge to India's pension policy.
Adequate steps have yet to be implemented to see to it that pension coverage increases in India.
Only 12 per cent of the enormous Indian population of 1.21 billion is covered by any type of formal pension arrangement at all.
3. China
In China, like India, only about 12 per cent of the population contributes to a pension. China ranks third in terms of weakness in pension system.
The ratio of pensioners aged 65 and older to population aged 15-64 years is expected to top 40 per cent in China by 2050.
Comprehensive pension systems remain the exception rather than the rule across Asia, Allianz GI said.
4. Thailand
Thailand has the world's fourth weakest pension system. The weaknesses of Thailand's pension system are compounded by an average retirement age of 55 years, compared with 65 years in most western European countries.
Like in China, the ratio of pensioners to the younger population is estimated to be over 40 per cent in by 2050.
5. Japan
Among the Asian countries, Japan ranks fourth -- despite good pension coverage.
Japan is suffering from one of the highest old-age dependency ratios in the world. By 2050, it is expected to increase to an unsustainable level of almost 70 per cent, compared to 42 per cent in China.
Another factor influencing Japan's unfavourable ranking is its high sovereign debt, which leaves no room for subsidizing the pension system should it become necessary.
Japan has the world's fifth weakest pension system.
6. Spain
Spain is home to the world's sixth weakest pension system. A rapid rise in sovereign debt across more developed economies has pushed the need for pension fund reform up the national agenda in Spain, the index said.
Compared to 2009, Spain lost any gains it had made from stepping up pension reforms to a worsening of other sub-indicators.
Europe has very comprehensive pension systems, but its current debilitating debt crisis has left its economy in tatters with nations having to hunt for resources to fund these pension plans.
7. Turkey
Turkey makes its debut in the Pension Sustainability Index with the highest score in eastern Europe. It has the world's seventh weakest pension system.
As is the case in emerging Asian markets, Turkey's large informal sector is putting a drain on its pension system.
The Turkish pension system consists of an earnings-related public scheme with a means-tested safety net and health insurance.
In 2001, private pension plans were introduced to enhance the existing mandatory PAYG state pension scheme. Contributions made to private pension plans are tax-deductible.
8. Romania
Romania has channelled contributions to privately funded second schemes to the 'pay as you go' public system in order to strengthen fiscal positions.
It has the world's eighth weakest pension system.
'The negative impact of the financial crisis on accumulated funds and national economies has tested the resolve of many governments,' said the AllianzGI study.
'In central and eastern Europe, for instance, some countries decided to put their hand into the proverbial pension-fund cookie jar in response to the dramatic rise in debt to GDP ratios,' it said.
9. Italy
Unsustainable rise in sovereign debt in Italy has pushed the need for pension fund reform up the national agenda in Italy, too.
Italy has the world's ninth weakest pension system.
Driven by unfavourable demographic developments and unsustainable, outdated or fragmented systems, pension reform has been at the top of political agendas across the globe for many years now.
The reform process in the wide range of countries addressed by this survey differs considerably from country to country, which is why Allianz Global Investors first introduced the Pension Sustainability Index.
10. Slovak Republic
The Slovak Republic has the world's tenth weakest pension system. Eastern Europe was hit particularly hard by the downturn.
So much so, that some of its countries opted to revoke pension reforms, resulting in a very ambiguous picture of the pension landscape that, by its very nature, requires long-term stability.
11. Cyprus
Cyprus has the world's 11th weakest pension system. The Cypriot pension system, which is almost entirely based on the first pillar, is composed of a mandatory social security fund, voluntary occupational pension funds and provident funds.
Access to second pillar schemes is limited and, instead of savings being rolled over when an employee changes jobs, lump sums are paid out. A voluntary third pillar is still in its infancy.
Several measures were introduced in 2009 to strengthen the long-term financial sustainability of the Cypriot pension system; the main being an incremental increase in contributions until 2039.
In 2010, two new pension regulations came into force. Regulation 1/2010 and Regulation 2/2010 provided a new framework for the investment strategies (shift from local to global assets) of Cypriot pension funds.
12. Malta
The Maltese have the world's 12th weakest pension system. Malta's pension system consists primarily of a mandatory, public pillar, PAYG (Pay As You Go) pension scheme.
Employer and employee each contribute 10 per cent of basic wages and the state provides an additional 50 per cent of the total contributions to finance benefits for old-age, survivors, disability, sickness and maternity, workplace injury and family allowances.
The most recent pension reforms, which were implemented in January 2007, include equalizing and increasing the retirement age to 65, extending the contribution period for full pension from 30 to 40 years, gradually increasing the taxable income ceiling, and modifying the minimum pension guarantee.
Second and third pillar schemes are still in the initial phase. A working group is currently discussing the introduction of a mandatory occupational plan funded jointly by employee and employer.
A voluntary pension plan is also being developed.
13. Hungary
To strengthen its long-term fiscal outlook, Hungary has reversed its pension financing model, diverting contributions back from the privately funded second pillar to the unfunded public pillar.
It is home to the world's 13th weakest pension system.
Hungary was much more unabashed, using pension assets to reduce sovereign debt and strongly encouraging employees to return to the first pillar.
Though such measures may have ameliorated fiscal problems in the mid-term, their depleted pension resources will eventually butt up against increasing pension expenditures at the risk of long-term sustainability.
14. Slovenia
Like most East European nations, the Slovenian economy too is in a downward spiral. It has the world's 14th weakest pension system.
With a high debt-to-GDP ratio and low growth rates, Slovenia is also grappling with the funding of its pension schemes.
15. Portugal
One of the PIIGS nations (the others being Italy, Ireland, Greece and Spain), Portugal is in a major economic mess. Its pension system is the 15th weakest in the world.
Little wonder then that it has currently one of the weakest pension systems in the world.
16. Ireland
Ireland has the world's 16th weakest pension system.
The Irish economy too is reeling. Ireland is trying to find an answer to some weaknesses in its pension system, such as the small size of some schemes, wide variation in awareness and understanding of trustee responsibilities and conflicts of interest among trustees, particularly among employer nominated trustees of defined benefit plans.
In Ireland, the Pensions Board is also considering making the training of trustees compulsory.
17. Singapore
In Singapore, the old-age dependency ratio is expected to increase by four or five times. It has the world's 17th weakest pension system.
The vast economic difference between emerging and developed countries in Asia has resulted in very diverse pension landscapes.
However, when a country does decide to introduce a formal pension system, it generally follows the World Banks' recommendation of a balanced multi-pillar model. Only Singapore chose to operate a one-pillar system with multi-purpose funds that can be used for different purposes, making the pension level very low.
18. Belgium
The Belgian economy is floundering like the rest of the Eurozone and despite having a fairly good plan, the nation's rising debt is making it unsustainable for the government there to be able to fund it pensioners.
The world's 18th weakest pension system is in Belgium.
In Belgium, at least two persons must be in charge of the management of a pension fund or life insurance company and they must be professionally reliable and have adequate experience.
The members of the management board have to provide an overview of their professional expertise and provide proof of their good repute.
19. France
The French have the world's 19th weakest pension system. The financial crisis, which had a negative impact both on accumulated funds and national economies, however, tested their resolve.
Economic growth slumped heavily and put a tremendous strain on public finances.
With a dramatic rise in debt-to-GDP ratios, some countries decided to put their fingers into the proverbial pension-fund cookie jar.
20. Luxembourg
It might seem unlikely, but Luxembourg is home to the world's 20th weakest pension system.
Luxembourg's pension system is clearly dominated by the first pillar, which has an almost 100 per cent replacement rate for average earners. With the generosity of its first pillar, the second pillar remains undeveloped.
The Luxembourg social security scheme provides substantial retirement benefits based on the following two main components:
1) Contributions are 24 per cent of gross income, split equally between employer, employee and the state, and
2) Contributions must be paid in for at least ten years prior to retirement, which is usually at age 65, in order to claim an old-age pension.
Though a 1999 law established a framework for occupational pension funds, coverage is still low. Luxembourg launched a cross-national Institution of Occupational Retirement Provision (IORP) in 2010.
