Provided by Mercer: 16/10/09
Inaugural Melbourne Mercer Global Pension Index released.
Australia’s retirement income system has ranked second - but failed to obtain an A-grade classification - in a world first global pension index that compares private and public pension systems from around the world and ranks them based on adequacy, sustainability, and integrity.
The inaugural Melbourne Mercer Global Pension Index, produced by the Melbourne Centre for Financial Services and Mercer, is a world first in comparing the retirement income systems of 11 countries.
The Netherlands obtained top ranking in the Melbourne Mercer Global Pension Index with a score of 76.1 out of a maximum of 100, followed by Australia (74.0), Sweden (73.5) and Canada (73.2).
With an ageing population on the agenda as a critical issue for governments around the world, this index can provide lessons and better insight into how countries are grappling with the related economic and social issues, said Professor Deborah Ralston Director of the Melbourne Centre for Financial Studies.
Dr David Knox, Worldwide Partner in Mercer’s Retirement, Risk and Finance business, who oversaw the study said that while Australia’s system ranked highly, it still needs to strive for A grade status (a score of 80 or above).
The report recommended that Australia’s system could be improved by:
- Increasing the level of mandatory contributions, preferably with some participation from employees
- Requiring some part of the final benefit to be taken as an income stream
- Raising the labour force participation rate amongst older workers
- Continuing to review the pension age as life expectancy increases.
“With Australia’s superannuation system currently under the spotlight of the Henry and Cooper Review, this index provides a timely reminder that while Australia’s system has many good features there is still a lot that can be done to improve the adequacy of our system,” said Dr Knox.
No country in the Index was classed as having an A-grade system (obtaining a score greater than 80). “The fact that no country achieved an A-Grade classification confirms that no one system is perfect or currently robust enough to withstand the growing challenges of supporting an ageing population.
“The best arrangements for a particular country will depend upon its individual social, economic, political, cultural and historical context. However, Governments can learn lessons to help them better prepare for demographic change by looking at other retirement income system,” Dr Knox said.
Professor Deborah Ralston said, “The value in a study such as this is that is allows practitioners, government, members of the community and academics to examine and discuss the relative merits of different retirement systems. This is a matter of key importance for every Australian to know that they can enjoy a healthy and well resourced retirement, and indeed, as this study show, while we could do better, we have one of the best systems in the world.”
The countries with the lowest ranking retirement income systems were Japan with a score of 41.5, China (48.0) and Germany (48.2). While these countries don’t fall into the lowest grade E category, with a score below 35, the efficacy and sustainability of their systems will be in doubt if major weaknesses are not addressed.
The overall index considers results from more than forty indicators which reflect certain features that are desirable in all retirement income systems. These characteristics have been grouped into three sub-indices: adequacy, sustainability and integrity.
The adequacy of benefits – or how much income is available to a retiree – was given the highest rating in the index. The Netherlands (80.5) and Canada (76.2) scored highest in this index due to the level of the minimum public pension and a relatively high net replacement rate of income for median income earners. Australia was in fourth position in the adequacy sub-index with a score of 68.1. Japan had the lowest score at 39.2.
In the sustainability sub-index, participation in private pension plans and the level of pension assets (expressed as a % of GDP) were the two major factors. Sweden (75.2) and Australia (71.0) rated the highest on this sub-index.
The integrity sub-index considers was based on an assessment of four key areas – prudential regulation, governance, risk protection and communication of private pension provisions. The highest rating countries for the integrity sub-index were the Netherlands (88.2), Australia (87.8) and the UK (86.3).
The inaugural Melbourne Mercer Global Pension index was a pilot study and it is hoped it will be repeated annually and future studies will be expanded to include more countries. The report is expected to generate strong interest internationally, including with organisations such as the World Bank and the OECD.
Melbourne Mercer Global Pension Index 2009
The following table shows the overall index value for each country, together with the index value for each of the three sub-indices: adequacy, sustainability and integrity. Each index value represents a score between 0 and 100.
| Country | Overall index
value | Sub-index values |
|---|
| Adequacy | Sustainability | Integrity |
|---|
| Weighting 40% | Weighting 35% | Weighting 25% |
|---|
| Netherlands | 76.1 | 80.5 | 62.5 | 88.2 |
| Australia | 74.0 | 68.1 | 71.0 | 87.8 |
| Sweden | 73.5 | 68.5 | 75.2 | 79.1 |
| Canada | 73.2 | 76.2 | 64.2 | 80.9 |
| UK | 63.9 | 56.6 | 56.4 | 86.3 |
| USA | 59.8 | 49.2 | 69.4 | 63.4 |
| Chile | 59.6 | 48.9 | 54.1 | 84.5 |
| Singapore | 57.0 | 51.7 | 68.9 | 49.1 |
| Germany | 48.2 | 60.8 | 44.3 | 33.7 |
| China | 48.0 | 64.7 | 38.5 | 34.7 |
| Japan | 41.5 | 39.2 | 34.4 | 55.2 |
| Average | 61.4 | 60.4 | 58.1 | 67.5 |
This information has been prepared by Mercer (Australia) Pty Ltd ABN 32 005 315 917 for general information only. The information does not take into account your personal objectives, financial situation or needs. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult a licensed or appropriately authorised financial adviser before making any investment decision.
