Singapore is the only Asian country with a retirement income system on par with leading western economies, according to the comprehensive 2014 Melbourne Mercer Global Pension Index (MMGPI) launched today.
Of the six Asian countries featured in the Index, Singapore scored 65.9; leading China (49.0), Indonesia (45.2), Japan (44.4), South Korea (43.6) and India (43.5) but still fell short of the western countries which made up the rest of the top ten.
Denmark continued to hold onto the top position in 2014 with an overall score of 82.4. Denmark’s well-funded pension system with its good coverage, high level of assets and contributions, the provision of adequate benefits and a private pension system with developed regulations are the primary reasons for its top spot.
The MMGPI measured 25 retirement income systems against more than 50 indicators under the sub-indices of adequacy, sustainability and integrity and, according to author of the report and Senior Partner at Mercer, Dr David Knox, the results highlight the incredible complexity of the many different systems adopted around the world.
“The scores of countries such as China, Indonesia, India and Korea are reflective of the relatively early stages of development of their retirement income systems, which can make comparison difficult. However, our study conclusively demonstrates some common challenges. For example, many countries have recognized the need to increase the retirement age to reflect increasing life expectancy and the need to encourage higher levels of private saving,” Dr Knox said.
Mercer’s study includes specific recommendations for each of the countries listed in the Index.
However, the MMGPI found again there is no perfect system that can be applied universally around the world, but there are many common features that can be shared for better outcomes for individuals. The MMGPI now covers 25 countries and close to 60% of the world’s population. It has grown from 11 countries in 2009 and is the most comprehensive comparison of pension systems globally.
Professor Deborah Ralston, Executive Director of the ACFS said the expansion of the Index reflects the fact most countries are grappling with the social and economic effects of ageing populations and global comparisons can lead to global lessons for government, industry and academia as they debate how best to provide for an ageing population.
“Although each country’s retirement income system reflects a unique history, there are some common themes as many countries face similar problems in the decades ahead and the Index aims to highlight the best solutions and share them globally,” said Professor Ralston.
“It’s pleasing to note average scores are increasing over time, suggesting pension reform around the world is having a positive effect. The average score for the 14 countries in 2010 was 61.7 compared to 64.3 for the same countries in 2014,” she said.
Good governance critical for success in changing world
Beyond the Index rankings, the 2014 MMGPI looked at the importance of trust and transparency in a retirement income system.
“The tides of accountability for ensuring financial security in retirement are shifting from State and employer responsibility to individuals in many countries. This trend will continue as life expectancy continues to increase and many governments reduce the per capita expenditure on their aged population. This shift means communication to members has never been more important or come under more scrutiny from members, regulators, employers, consumer groups, politicians and the media,” said Dr David Knox, Senior Partner at Mercer.
“Ensuring transparency and the trust of individuals is becoming increasingly important. If you lose community trust in a pension system; you risk losing the effectiveness of the system.
“Governments, regulators and financial industries have to ensure good governance frameworks and practices that promote regular easy to understand communication, clear benefit projections, and access to comparative information in a cost-efficient manner.
“The pension industry must develop efficient methods to be transparent in meaningful and relevant ways to all stakeholders. There is now no alternative,” he said.
Other challenges common to many countries include the need to:
- Promote higher labour force participation at older ages
- Increasing coverage of the private pension system with an element of compulsion or automatic enrolment
- Reduce the leakage from the system prior to retirement
- Improve the governance of private pension plans and require improved transparency
The Index looks objectively at both the publicly funded and private components of a system as well as personal assets and savings outside the pension system. It is published by the Australian Centre for Financial Studies (ACFS) in conjunction with Mercer and is funded by the Victorian State Government.
About the Australian Centre for Financial Studies
The Australian Centre for Financial Studies (ACFS) is a not-for-profit consortium of Monash University, RMIT University and Finsia (Financial Services Institute of Australasia) which was established in 2005 with seed funding from the Victorian Government. The mission of the ACFS is to build links between academics, practitioners and government in the finance community to enhance research, practice, education and the reputation of Australia's financial institutions and universities, and of Australia as a financial centre. ACFS conducts leading edge finance research, commentary and thought leadership. More information can be found at www.australiancentre.com.au and on the Index www.globalpensionindex.com.
Mercer is a global leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in more than 43 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. For more information, visit www.mercer.com.au. Follow Mercer on Twitter @MercerAu