The FINANCIAL — Denmark makes its debut in the Melbourne Mercer Global Pension Index, an annual report that ranks pension systems around the world, and instantly achieves the top spot.
The FINANCIAL — Denmark makes its debut in the Melbourne Mercer Global Pension Index, an annual report that ranks pension systems around the world, and instantly achieves the top spot.
Denmark received an overall index value of 82.9 and becomes the first system to be classified as ‘A’ grade, moving Netherlands from the top position in the rankings. Denmark’s unique ‘A’ grade ranking has been awarded in recognition of the country’s well funded pension system, its high level of assets and contributions, the provision of adequate benefits and a private pension system with well developed regulations.
India’s retirement savings and income system has marginally slipped since 2011, value decreasing from 43.4 in 2011 to 42.4 in 2012, but its overall global ranking of 18 stays constant. The index value fell mainly due to the introduction of Worldwide Governance Indicators. An overall score of 35-50 indicates that the system has some good features, but also has major risks or shortcomings that should be addressed. Without these improvements, its efficacy and and/or long term sustainability can be questioned.
Japan’s retirement savings and income system have made small gains since 2011, with the Melbourne Mercer Global Pension Index value increasing form 43.9 in 2011 to 44.4 in 2012. However, its overall global ranking has slipped from 14th to 17th place. The Japanese gains in the overall Index value have primarily resulted from the introduction for tax relief of employee contribution for Defined Contribution plans and the change in scoring for the level of investment in growth assets.
The United States moved up one place in a global comparison of 18 of the world’s pension systems, but the sustainability of the system is at risk due to a rise in government debt and a fall in the household savings rate. According to the 1012 Melbourne Mercer Global Pension Index, the US system requires further reform to withstand the pressures of its ageing population and help Americans secure sufficient retirement savings.
According to the report, many of the world’s retirement systems are under significant stress and even the world’s most advanced retirement income systems require reform.
The UK’s retirement savings and income system is the seventh best in the world. The adequacy and integrity of the UK pensions system continues to score highly, but the UK’s overall score in the Index fell marginally against last year’s results for a variety of reasons, mainly concerning long term sustainability.
The findings also do not factor in the impact of auto-enrolment, which will significantly alter the UK pensions landscape, and which will only begin to be measured in next year’s Index.
The Index also measured for the first time the asset allocation of each country’s collective pension plans, with the UK measured to be investing between 51 and 60 percent in growth assets. By comparison, Australia invests over 70 percent – more than any other country – in growth assets, which include ports and airports in the UK.
The report finds that the greater the exposure to growth assets, the more likely the system will rank near the top of the Index, which helps explain countries’, including Australia’s, continued success in the global rankings; Australia ranked 3rd this year thanks to the fact that its pension assets have grown consistently in recent years.
The UK compared favourably on the ‘integrity’ of its system scoring 85 against an average for all countries of 71.5. ‘Integrity’ examines the role of regulation and governance on the UK, the protection provided to participants, and the level of communication provided to members.
The UK also scored significantly above average on the ‘adequacy’ of its system i.e. the ability of it to deliver adequate retirement income to pensioners (with a score of 68 against an average of 62).
However, with a score of 46.5 against an average of 52.1, the UK is lagging behind other countries on the ‘sustainability’ of its pension system. This section tracks the sustainability of arrangements against issues like old age dependency, state pension age, the opportunity for phased retirement and the labour force participation rates of older workers. The data shows that the UK’s system appears to be becoming more unsustainable over time – it had a sustainability score of 56.4 back in the first Index in 2009.
Netherlands’ retirement system has made some gains since 2011, value increasing from 77.9 in 2011 to 78.9 in 2012, but its overall global ranking has slipped from first to second place. The Dutch gains in the overall Index value have primarily resulted from an increase in adequacy and sustainability.
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