Now in its seventh year, the Melbourne Mercer Global Pensions Index 2015 released on Tuesday measured 25 retirement income systems against more than 40 indicators; under the sub-indices of adequacy, sustainability, and integrity.
Of the 25 countries analysed, seven were graded “B/B+”; 11 were rated grade “C/C+”; and five were graded “D”.
Longer in retirement
All 11 countries that have been part of the index since its inception in 2009 have experienced an increase in the expected length of retirement; rising from 16.6 years to 18.4 between 2009 and 2015.
“Extending the years that individuals spend in the workforce is one of the most positive ways of developing sustainable retirement systems when life expectancies are increasing,”
The increase, however, has been far from uniform with the US experiencing an increase of less than 0.4 years, while Chile reported a rise of more than four years as a result of a significant increase in life expectancy.
Five countries – Australia, Germany, Japan, Singapore, and the UK – have increased their pension age to offset the increase in life expectancies. But this will not be enough to halt the increasing length of retirement.
For the 16 countries that have been part of the index since 2011, the average labour force participation rate for 55-64 year olds increased from 57.9% to 62.2% – equating to average growth of just over one percentage point per year.
“Extending the years that individuals spend in the workforce is one of the most positive ways of developing sustainable retirement systems when life expectancies are increasing,” said David Knox, senior partner at Mercer and author of the report.
The next generation
The sustainability of a pension fund cannot be assessed without reviewing the level of funds set aside to pay future retirement benefits, thereby ensuring that the expected pensions are not a financial strain on the next generation.
There is currently an enormous variety in the level of pension assets held across the world. Pension assets equate to 1.8% of GDP in Indonesia and 6% in Austria. This compares with 160.6% in the Netherlands and 168.9% of GDP in Denmark.
“The diversity in pension assets held as a percentage of GDP recognises that some countries have very limited private pension arrangements; whereas others have well-developed and mature pension systems. However, it is an important warning for all countries to prepare, prepare, prepare,” Knox concluded.