Pension systems around the world, whether they be social security systems or private sector arrangements, are now under more pressure than ever before. Rapid ageing of our population is a fact of life in many countries. Yet this is not the only pressure point on our pensions systems. Others include:
- increased government debt in some countries which affects the ability to pay benefits in pay-as-you-go systems
- the low-growth/low-interest economic environment which reduces the long-term benefit of compound interest, particularly affecting defined contribution arrangements
- significant unemployment, particularly amongst the youth, in some countries which affects their ability to accrue future benefits
- the increasing prevalence of defined contribution schemes and the related increased responsibility on individuals to understand the new arrangements.
Significant pension reform is being considered or implemented in many countries.
Within this global environment of change, it is important that we learn together to understand what best practice may look like, both now and into the future. This eighth edition of the Melbourne Mercer Global Pension Index presents such research and compares retirement income systems in 27 countries which encompass a diversity of pension policies and practices.
The primary objective of this research is to benchmark each country’s retirement income system using more than 40 indicators. An important secondary purpose is to highlight some shortcomings 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.
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, encouraging people to work longer, the level of funding set aside for retirement, and some benefit design issues that reduce leakage of benefits before retirement.
This year we have considered the very significant impact of ageing populations, analysing the projected old age dependency ratio for each country and five mitigating factors. The results are both fascinating and concerning; as we consider the relative position of each country.