The Netherlands has retained its first place ranking for a third year running in the annual Melbourne Mercer Global Pensions Index, a global comparison of national pension systems. The Index covers both the publicly funded and private funded components of retirement systems across 16 countries and is based on more than 40 indicators grouped into three sub-indices: adequacy, sustainability and integrity. It also covers personal assets and savings outside the pension systems of the countries covered.
The Netherlands was followed in the Index, in rank order, by Australia, Switzerland, Sweden, Canada and the UK.
The UK pension system has maintained its sixth place ranking for the third year running. Mercer said the static ranking masks improvements in the UKs overall index score which have resulted from increases (relative to pay) in peoples projected pensions, improved population coverage of pension schemes and increased savings rates. According to the Index, however, further reform is still required to ensure that the UK can withstand the pressures of its ageing population and ensure sufficient retirement savings for its population.
According to the report, the UKs index value rose from 63.7 in 2010 to 66.0 in 2011. The UKs position has improved due the following factors: an increase in the net household saving rate, from 0.5% to 2.7%, in response to a more uncertain job market; a change in the way the OECD calculates pension scheme coverage, resulting in a change in the percentage of people in the UK with pension provision from 59.1% of the employed workforce to an estimated 58.2% of the working age population; and, according to the OECD, the target net pension replacement rate for a median income earner in the UK increased from 44.3% to 48.0% of their pre-retirement take-home pay, largely due to an expected greater than prices linked indexation of the Basic State Pension.
The report outlines that many of the worlds retirement systems are under significant stress with even the worlds most advanced systems requiring ongoing reform to ensure theyre robust enough to support a rapidly ageing population. The index also highlights that currently there is no perfect national retirement income system. No country received an A grade, but six countries received a B (sound structure with many good features but room for improvement) including the UK. Ten countries received either a C (major risks or shortcomings) or a D (major weaknesses and omissions).
Mercer senior partner and author of the report, Dr David Knox, said, Given the current economic situation, the risk of governments not being able to financially support their ageing population is becoming more of a reality. Significant pension reform needs to be made now. The best pension systems adopt a multi-pillar approach to spread these long term risks between governments, employers and individuals, he continued.
The Melbourne Mercer Global Pensions Index is produced by Mercer and the Australian Centre for Financial Studies and funded by the Victorian State Government.
(JDC)