How is it calculated? | Melbourne Mercer Global Pension Index : Melbourne Mercer Global Pension Index


How is it calculated?


The overall index value for each country represents the weighted average of the three sub-indices. The weightings used are:

  • 40 percent for the adequacy sub-index
  • 35 percent for the sustainability sub-index
  • 25 percent for the integrity sub-index

The different weightings are used to reflect the primary importance of the adequacy sub-index which represents the benefits that are currently being provided together with some important benefit design features. The sustainability sub-index has a focus on the future and measures various indicators which will influence the likelihood that the current system will be able to be maintained in the future. The integrity sub-index considers several items that influence the overall governance and operations of the system which affects the level of confidence that the citizens in each country have with their system.

The following diagram presents a high-level summary of the index.

methodology chart mmgpi2013 How is it calculated?

Chapter 5 of the report makes several suggestions to improve each country’s retirement income system. Although each system reflects a unique history, there are some common themes as many countries face similar problems in the decades ahead.

These common challenges include:

  • increasing the state pension age and/or retirement age to reflect increasing life expectancy, both now and in the future
  • promoting higher labour force participation at older ages, which will increase the savings available for retirement and reduce the length of retirement
  • encouraging (or requiring) higher levels of saving, both within the pension system and beyond it
  • increasing the coverage of employees in the private pension system, where it continues to be voluntary
  • reducing the leakage from the retirement savings system prior to an individual’s retirement.

Definitions:

Adequacy
The primary objective of any pension system is to provide adequate retirement income. Thus, this sub-index considers the base level of income provided as well as the net replacement rate for median-income earners.

Sustainability
This sub-index evaluates the long-term sustainability of the current retirement income system in many countries is a concern, particularly in the light of the ageing population, the increasing ratio of retirees to productive workers and, in some countries, increasing government debt.

Integrity
It is critical that a nation has confidence in the ability of private sector pension providers to deliver retirement benefits over many years into the future. This sub-index therefore considers the role of regulation and governance, the protection provided to participants and the level of communication provided to members. We consider the requirements set out in relevant legislation. This year we have added an indicator based on the World Bank’s Worldwide Governance indicators.


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Link to Victorian Government (Victoria Online) the Mercer Australian website Australian Centre for Financial Studies