Melbourne Mercer Global Pension Index Urges Countries With Unsustainable Pension Systems to Take Action Now

The index’s ninth edition looks at how unsustainable pension systems in some countries need to learn from leading countries or risk creating intergenerational equity issues and disappointed retirees.

Now measuring 30 countries and covering 60% of the world’s population, the Melbourne Mercer Global Pension Index (MMGPI) benchmarks each country’s retirement income system in order for the countries to learn from each other and improve their systems, as well as, ultimately, retirement outcomes for present and future retirees, Mercer says.

Author of the report and senior partner at Mercer, David Knox, Ph.D., says it is clear which countries lead the way in providing sustainable pension systems with adequate benefits—and what others can learn from them to improve. “Denmark, 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.”

Jacques Goulet, president of health and wealth at Mercer, stresses the need for countries to address sustainability when considering pension reform. “Increasing life expectancies and low investment returns are having a significant long-term impact on the ability of many systems around the world to deliver adequate retirement benefits both now and into the future. These pressures have alerted policymakers to the growing importance of intergenerational equity issues.”

Goulet says Japan, Austria, Italy and France are examples of developed economies whose pension systems do not represent a sustainable model that will support 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 labor force participation at older ages, and significant demographic changes toward an aging population,” says Goulet. “If left unchanged, these systems will create societal pressures where pension benefits are not distributed equally between generations.”

The U.S. retained its lower middle “C” ranking, though the overall index score rose slightly from 56.4 in 2016 to its 2017 ranking score of 57.8. The U.S.’s retirement challenges remain, however, and the MMGPI report outlines recommendations to enhance the country’s current framework including the following:
  • Raising the minimum pension for low-income pensioners;
  • Adjusting the level of mandatory contributions to increase the net replacement for median-income earners;
  • Improving the vesting of benefits for all plan members; and
  • Maintaining the real value of retained benefits through to retirement and reducing pre-retirement leakage by further limiting access to funds before retirement.

“Though components of the United States’ retirement system enable individuals to save enough for retirement, there is room for improvement,” says Peter Stewart, global wealth consultant, multinational client group, Mercer. “As populations age and low interest rates persist, many individuals have concerns about their ability to accumulate sufficient wealth to support their lifestyle in retirement. It is an opportune time to examine what can be done to improve the adequacy, sustainability and integrity of America’s retirement framework.”

New entrants to the index Norway and New Zealand achieved credible overall index values of 74.7 and 67.4, respectively. Both countries were noted as having a sound structure, with many good features, but still having areas for improvement.

Colombia, with an overall index value of 61.7, was noted as a system with some good features, but also as one with some major risks and shortcomings that need to be addressed.

The full report is available here.