2018 Melbourne Mercer Global Pension Index

2018 Melbourne Mercer Global Pension Index

Mercer releases Global Pension Index, explore India results to see our preparedness for tomorrow’s ageing world

  • 22 October, 2018
  • India, Mumbai
  • The Netherlands takes first place, as Denmark comes in second
  • India finds itself grouped under  grade-D along with Japan, China, Korea (South), Mexico and Argentina
  • Index expanded to include Hong Kong SAR, Peru, Saudi Arabia and Spain
  • Private pension systems need to expand to include all the workforce

Ageing population continues to pose a challenge to governments worldwide, with policymakers struggling to balance the twin goals of delivering financial security for their retirees that is both adequate for the individual and sustainable for the economy.

Now in its tenth year, the Melbourne Mercer Global Pension Index reveals who is the most and who is the least prepared to meet this challenge.

Measuring 34 pension systems (34 countries), the Index shows that the Netherlands and Denmark (with scores of 80.3 and 80.2 respectively) both offer A-Grade world class retirement income systems with good benefits - clearly demonstrating their preparedness for tomorrow’s ageing world.

The countries with the highest value for the adequacy sub-index are Germany (79.9) and France (79.5) with Mexico (37.3) and India (38.7) having the lowest values.

However, common across all results was the growing tension between adequacy and sustainability. This was particularly evident when examining Europe’s results. Denmark, Netherlands and Sweden score A or B grades for both adequacy and sustainability, whereas Austria, Italy and Spain score a B grade for adequacy but an E grade for sustainability thereby pointing to important areas needing reform.

India continues to maintain its level of 2017 in the sub-indices of sustainability and integrity though the overall index value fell marginally from 44.9 in 2017 to 44.6 in 2018 due to the change from using the median income earner to the average income earner to calculate the net replacement rate in the adequacy sub-index.

The demographics and macros economic factors in India are diverse and pension systems have to be aligned to other programs in the country.  India has been taking slow but steady steps towards strengthening its retirement income system.

The index value can further be enhanced by encouraging greater participation of the organised sector in supplemental pension plans, increasing the level of awareness through communication both for organized and unorganized sector and increasing pension arrangements for the unorganized sector.

Author of the study and Senior Partner at Mercer Australia, Dr David Knox says that the natural starting place to having a world class pension system is ensuring the right balance between adequacy and sustainability.

“It’s a challenge that policymakers are grappling with,” says Dr Knox. “For example, a system providing very generous benefits in the short-term is unlikely to be sustainable, whereas a system that is sustainable over many years could be providing very modest benefits. The question is – what’s an appropriate trade-off?”

As highlighted in Chart 1, all systems should consider adjusting their strategy so they are moving towards the top right quadrant. Through the study, policymakers can understand the characteristics of leading systems and find ways to improve their own.

Chart 1: Adequacy versus Sustainability ratings for global pension systems

Source: Melbourne Mercer Global Pension Index 2018

Preeti Chandrashekhar, India Business Leader, Health and Wealth at Mercer added that certain recent reforms by the Government that have allowed more investments of pension funds in growth assets have added impetus to helping improving the adequacy of the system.

“The effect of such changes are not seen overnight” she added

India’s Overall Index Historical Performance

 

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

na

na

43.4

42.4

43.3

43.5

40.3

43.4

44.9

44.6

What does the future look like?

Some pension systems face a steeper path to long term sustainability than others, and all start from a different origin with their own unique factors at play. Nevertheless, every country can take action and move towards a better system. In the long-term, there is no perfect pension system, but the principles of “best practice” are clear and nations should consider creating policy and economic conditions that make the required changes possible.

With the desired outcome of creating better lives, this year’s Index provides a deeper and richer interpretation of the global pension systems. Having now expanded to include Hong Kong SAR, Peru, Saudi Arabia and Spain; the Index measures 34 systems against more than 40 indicators to gauge their adequacy, sustainability and integrity. This approach highlights an important purpose of the Index – to enable comparisons of different systems around the world with a range of design features operating within different contexts and cultures.

Melbourne Mercer Global Pension Index by the Numbers

This year’s Index reveals that many North-Western European countries lead the world in developing world class pension systems. The Netherlands, with an overall score of 80.3, beat Denmark to first place, a spot held by Denmark for six years, by 0.1. Finland bumped Australia (72.6) out of third place with an overall score of 74.5 and Sweden (72.5) coming in fifth place.

“The Index is an important reference for policymakers around the world to learn from the most adequate and sustainable systems,” Dr Knox says. “We know there is no perfect system that can be applied universally, but there are many common features that can be shared for better outcomes.”

Melbourne Mercer Global Pension Index – Overall index value results

The Index uses three sub-indices – adequacy, sustainability and integrity – to measure each retirement income system against more than 40 indicators. 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 zero and 100.

2018 Results

-Ends-

About Melbourne Mercer Global Pension Index:

The Melbourne Mercer Global Pension Index is published by the Australian Centre for Financial Studies (ACFS), in collaboration with Mercer and the State Government of Victoria who provides most of the funding. Financial support has also been provided by The Finnish Centre for Pensions.

About Mercer

Mercer delivers advice and technology-driven solutions that help organizations meet the health, wealth and career needs of a changing workforce. Mercer’s more than 23,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), the leading global professional services firm in the areas of risk, strategy and people. With nearly 65,000 colleagues and annual revenue over $14 billion, through its market-leading companies including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.co.in. Follow Mercer on Twitter @Mercer.

About the Australian Centre for Financial Studies

The Australian Centre for Financial Studies (ACFS) is a research centre within the Monash Business School. The Centre was established in 2005 with seed funding from the Victorian Government and became part of Monash University in 2016. The asset management and pension industries are an area of particular focus for the Centre. For more information, visit www.australiancentre.com.au.

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