Pension systems around the world, whether they be social security systems or private sector arrangements, are now under more pressure than ever before. Rising life expectancies, increased government debt in many countries, uncertain economic conditions and a global shift to defined contribution (DC) plans mean that a new landscape is developing.
With increased community awareness and growing concern about the future of our retirement income systems it is important that we learn together to understand what best practice may look like, both now and in the years to come. This sixth edition of the Melbourne Mercer Global Pension Index presents such research and compares retirement income systems in 25 countries which encompass a diversity of pension policies and practices.
Many of the challenges relating to ageing populations are similar, irrespective of each country’s social, political, historical or economic influences. Further, the policy reforms needed to alleviate these challenges are also similar and relate to pension ages, the level of funding for retirement, encouraging people to work longer and some benefit design issues that reduce leakage of benefits before retirement.
It is pleasing to note that since 2009, the sustainability of several systems has improved in two key areas:
- Some governments have increased pension ages over the longer term.
- The labour force participation rate of 55-64 year olds in most countries has steadily increased.
Both these trends are important and need to be supported around the world.
The primary objective of this research is to benchmark each country’s retirement income system using more than 50 questions.
An important secondary purpose is to highlight the shortcoming in each country’s system and to suggest possible areas of reform that would provide more adequate retirement benefits, increased sustainability over the longer term and/or a greater trust in the pension system.
In last year’s report we discussed the largely unresolved issue of developing robust post-retirement solutions in a DC world. This year we tackle the important topic of trust and transparency in pensions. Our conclusion is that the pension industry must develop efficient methods to be transparent in meaningful and relevant ways to all stakeholders.
The Index is produced by the Australian Centre for Financial Studies and partnered with Mercer, with the Index funded by the Victorian State Government.