Asian countries under pressure to enforce “A-grade” retirement system

Netherlands continues to top ranking in Global Pension Index as more than a third of Index countries from Asia Pacific.

Asia Pacific countries are addressing some of the challenges they face in developing and improving their retirement income systems, however opportunities still abound to help the region withstand the increasing pressures of an ageing population and to be competitive with global counterparts according to the latest Melbourne Mercer Global Pension Index.

Netherlands held its position as number one on the Index. Australia regained its ranking as second in the world, with Switzerland again making up the top three. China and Japan’s index value increased slightly and India entered the index for the first time in 2011.

According to the Melbourne Mercer Global Pension Index many of the world’s retirement systems are under significant stress and even the world’s most advanced retirement income systems require ongoing reform to ensure they’re robust enough to support a rapidly ageing population. 

There is no perfect retirement income system according to the Index. No country received an A grade, and 10 countries received either a C (major risks or shortcomings) or a D (major weaknesses and omissions). But this Index can provide valuable lessons and insights into how countries are grappling with the economic and social challenges of an ageing population. 

Mercer Senior Partner and author of the report, Dr David Knox, said, in these uncertain economic times the risk of governments not being able to financially support their ageing population is becoming more of a reality unless some significant pension reform is made now. Click here to view a video of Dr Knox presenting an overview of the Index.

“Many retirement income systems in the APAC region are in the early stages of development and have unique features. Each country has to consider its own social, economic, political, cultural and historical circumstances, but despite the differences in the history and development of each country’s system there are some common challenges and lessons to be learnt from around the world.

“The best pension systems adopt a multi-pillar approach to spread these long term risks between governments, employers and individuals. Such an approach is also particularly relevant in periods of economic uncertainty, as we are now facing,” he said.

The Index is in its third year and has grown from 11 to 16 countries, now covering over half of the world’s population. It objectively looks at both the publicly funded and private components of a system as well as personal assets and savings outside the pension system. It is produced by Mercer and the Australian Centre for Financial Studies and funded by the Victorian State Government. It is based on more than 40 indicators grouped into three sub-indices: adequacy, sustainability and integrity.

Common global challenges include:

• Increasing the state pension age and/or retirement age to reflect increasing life expectancy, both now and in the future, and thereby reduce the level of costs of the publicly financed pension pillar;
• Promoting higher labour force participation at older ages including the provision of phased retirement;
• Encouraging or requiring higher levels of private saving, both within and beyond the pension system, to reduce the future dependence on the public pension;
• Increasing the coverage of employees and/or the self-employed in the private pension system, recognising that many individuals will not save for the future without an element of compulsion or automatic enrolment; and
• Reducing the leakage of funds from the retirement savings system prior to retirement thereby ensuring the funds saved, often with the associated taxation support, are used for the provision of retirement income.

Professor Deborah Ralston, Director of the Australian Centre for Financial Studies, said the Melbourne Mercer Global Pension Index remains critical for governments, industry and academia, with an ageing population a top priority for governments the world over.

“One again, this third edition of the Melbourne Mercer Global Pension Index highlights the areas of policy debate in pensions around the world. The on-going difficulty of developing systems that provide an adequate level of retirement income and yet maintain sustainability, especially in countries with an ageing population, warrants further research and discussion worldwide. We hope the Index will make a contribution to that end."