World’s pension systems ‘at risk of creating inter-generational issues’
“Inter-generational equity issues” are among a number of potential dangers facing pension systems around the world, many of which urgently need action taken now if countries are to avoid risking “the need to take even more drastic action in the future”, according to the latest edition of the Melbourne Mercer Global Pension Index.
Of the 30 countries’ pension systems examined, the researchers ranked Denmark’s as the best the sixth year running, with an “overall index value” of 78.9, followed by the Netherlands with a 78.8 ranking, and Australia with 77.1.
The UK’s score is 61.4 (“improved [but] still [just] C+”) and the US is 57.8, the index, now in its ninth edition, shows.
This year’s index was expanded to include Colombia, New Zealand and Norway, so that the countries it covers now represent 60% of the world’s population, according to a statement unveiling the latest report.
In the statement, Jacques Goulet, president of Health and Wealth at Mercer, stresses the need for countries to address sustainability when considering reforms to their pension systems.
“Increasing life expectancies and low investment returns are having significant long-term impacts on the ability of many systems around the world to deliver adequate retirement benefits both now and into the future,” Goulet says.
“These pressures have alerted policy makers to the growing importance of inter-generational equity issues.”
He cites Japan, Austria, Italy, and France as examples of developed economies that have pension system model capable of supporting current and future generations in their old age.
“This is due to a combination of factors, including a lack of assets set aside for the future, low labour force participation at older ages, and significant demographic changes towards an ageing population,” says Goulet.
“If left unchanged, these systems will create societal pressures [as a result of] pension benefits not [being] distributed equally between generations.”
Not all ‘doom and gloom’
But all is not – yet, anyway – doom and gloom, according to David Knox, author of the report. Every country, he says, is capable of taking action now to move towards the creation of a better and more sustainable pension system.
“The primary objective of the index is to benchmark each country’s retirement income system, so we can learn to understand what best practice may look like, both now and into the future,” Dr Knox says.
“From our research, it is clear which countries are leading the way in providing sustainable pension systems with adequate benefits, and what others can learn from them to improve.
“Denmark, the Netherlands and Australia are three such countries which, while taking different approaches depending on their starting point, adopt a strong, multi-pillar approach, as highlighted in the index.”
The index is published by the Australian Centre for Financial Studies (ACFS), in collaboration with Mercer and the government of the Australian state of Victoria, and with some financial support as well from the Finnish Centre for Pensions. A spokesman for the ACFS, Edward Buckingham, says the take-away for Australia is that its pension system “is good, but there is room for improvement”.
It is currently being sustained, he says, by the immigration of young people from other countries – without which “our ageing locally-born population would face significant challenges funding their retirement”.
To view and download a copy of the 80-page, 2017 edition of the Melbourne Mercer Global Pension Index, click here.
Below, a table showing the overall index value results of the 30 countries surveyed. Each index value represents a score between zero and 100.