Global Pension Index calls for major superannuation reform to close gender pension gap

  • Mercer CFA Institute Global Pension Index sees New Zealand slip from 10th to 15th
  • Index compares 43 retirement income systems, covering two-thirds of world’s population
  • Mercer recommends reforms to New Zealand pension system to close pension gap for women

New Zealand, October 19, 2021

New Zealand’s retirement income system has been ranked 15th in the annual Mercer CFA Institute Global Pension Index (MCGPI).

 

The MCGPI, in its 13th year, is a comprehensive study of global pension systems, accounting for almost two-thirds (65 per cent) of the world’s population. It benchmarks 43 retirement income systems around the world highlighting shortcomings in each system and suggesting possible areas of reform to provide more adequate and sustainable retirement benefits.

 

New Zealand’s pension system received a B grade, based on a sound structure with many positive features while also highlighting areas for improvement. The top three systems – Iceland, the Netherlands, and Denmark – were found to be sustainable and well-governed systems, all receiving an A-grade.

 

The study also reveals scope for pension systems around the world, to reduce the gender pension gap.

 

Senior Partner at Mercer and lead author of the study, Dr David Knox, noted the opportunities for New Zealand’s system, and stressed the importance of stakeholders working together to develop solutions that will contribute to better retirement outcomes for a greater proportion of New Zealanders.

 

“Governments across the world responded to COVID-19 with significant levels of economic stimulus, which has added to government debt, reducing the future opportunity for governments to support their aged population. Despite these challenges, now is not the time to put the brakes on pension reform – in fact, it’s time to accelerate the process. However, reform should be a collaborative process involving Government, employers, and the industry. 

 

“While regulation has focused on fees and sustainable investing, there has been little focus on contribution rates, life expectancy and New Zealanders outliving their retirement savings.

 

“Individuals are having to take more and more responsibility for their own retirement income, and they need strong regulation and governance to be supported and protected. Ultimately, with the right products, they will be empowered and confident to view their KiwiSaver as an income for consumption, rather than a nest egg,” Dr Knox said.

 

President and CEO at CFA Institute, Margaret Franklin, CFA, said it was more important than ever to understand how retirement benefits could be improved.

 

“The pandemic has exacerbated socio-economic inequality in many parts of the world. And, from a long-term investment perspective, we’re operating in an extremely challenging environment with historically low interest rates and, in some cases, negative yields clearly impacting returns,” Ms Franklin said.

 

“Compounding the issue, the gender pension gap presents additional and urgent challenges, with women facing their retirement years with fewer benefits. With these concerns in mind, the promise of a secure retirement depends on policymakers and industry stakeholders taking collective action to examine the strengths and weaknesses of pension systems, with the purpose of delivering better retirement benefits to every individual,” she said.

 

Shane Solly, CFA, of CFA Societies New Zealand said “The pandemic has highlighted socio-economic inequalities within New Zealand too. KiwiSaver is an accessible, effective way for Kiwis to improve their financial independence and resilience. KiwiSaver’s high integrity score in the report is important in providing all New Zealanders the confidence to view KiwiSaver as an effective, transparent and trustworthy generator of income for consumption in retirement. 

 

“However, KiwiSaver’s relatively low adequacy and sustainability rankings relative to other pension schemes highlights that New Zealanders need to grow their KiwiSaver balances to make the most of the retirement income generation. It’s been very challenging for many people to think about investing for retirement given COVID-19’s uncertainty and unusually low interest rates. However, the last year has highlighted the benefits of KiwiSaver’s effective structure for New Zealanders to invest for retirement income," Mr Solly said.

 

Gender differences in pension outcomes

 

The MCGPI’s analysis highlighted that there was no single cause of the gender pension gap, despite all regions having significant differences in the level of retirement income across genders.

 

“The causes of the gender pension gap are mixed and varied. Every country and region, including New Zealand, has employment-related, pension design and socio-cultural issues contributing to women being disadvantaged compared to men when it comes to retirement income,” said Martin Lewington, CEO of Mercer New Zealand.

 

The Financial Services Council’s KiwiSaver 2050 report acknowledges that women are contributing less to KiwiSaver, have lower average balances, and are less likely to have other investments. Coupled with women living longer than men, this creates a challenge as greater retirement savings are needed to be comfortable in later life.

 

“We know that closing the gender pension gap is an enormous challenge given the close link between pension to employment and income patterns. But, with poverty among the aged more common for women, we can’t afford to sit idle.

 

“There are a number of initiatives that New Zealand could introduce, including paying KiwiSaver on parental leave as a first step, but there is an opportunity to go further to introduce KiwiSaver contributions for those caring for the young and old. Carers taking time out to contribute to the community by providing a valuable service shouldn’t be penalised in their retirement years.

 

“Mercer is committed to improving the long-term financial wellbeing for women and we have many exciting initiatives coming up in KiwiSaver that propel this,” Mr Lewington said.

 

By the numbers

 

New Zealand achieved an index value of 67.4 overall, 61.8 for adequacy, 62.5 for sustainability and 83.2 for integrity.

 

Iceland had the highest overall index value (84.2), closely followed by the Netherlands (83.5). Thailand had the lowest index value (40.6).

 

The Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity. For each sub-index, the systems with the highest values were Iceland for adequacy (82.7), Iceland for sustainability (84.6) and Finland for integrity (93.1). The systems with the lowest values across the sub-indices were India for adequacy (33.5), Italy for sustainability (21.3) and the Philippines for integrity (35.0).

 

In comparison to 2020, China and the UK showed the most improvement as a result of significant pension reform, which improved outcomes for individuals and pension regulation.

 

2021 Mercer CFA Institute Global Pension Index

System

Overall index value

Sub-index values

Adequacy

Sustainability

Integrity

 Argentina (42)

41.5

52.7

27.7

43.0

 Australia (6)

75.0

67.4

75.7

86.3

 Austria (33)

53.0

65.3

23.5

74.5

 Belgium (17)

64.5

74.9

36.3

87.4

 Brazil (30)

54.7

71.2

24.1

71.2

 Canada (12)

69.8

69.0

65.7

76.7

 Chile (16)

67.0

57.6

68.8

79.3

 China (28)

55.1

62.6

43.5

59.4

 Colombia (25)

58.4

62.0

46.2

69.8

 Denmark (3)

82.0

81.1

83.5

81.4

 Finland (7)

73.3

71.4

61.5

93.1

 France (21)

60.5

79.1

41.8

56.8

 Germany (14)

67.9

79.3

45.4

81.2

 Hong Kong SAR (18)

61.8

55.1

51.1

87.7

 Iceland (1)

84.2

82.7

84.6

86.0

 India (40)

43.3

33.5

41.8

61.0

 Indonesia (35)

50.4

44.7

43.6

69.2

 Ireland (13)

68.3

78.0

47.4

82.1

 Israel (4)

77.1

73.6

76.1

83.9

 Italy (32)

53.4

68.2

21.3

74.9

 Japan (36)

49.8

52.9

37.5

61.9

 Korea (38)

48.3

43.4

52.7

50.0

 Malaysia (23)

59.6

50.6

57.5

76.8

 Mexico (37)

49.0

47.3

54.7

43.8

 Netherlands (2)

83.5

82.3

81.6

87.9

 New Zealand (15)

67.4

61.8

62.5

83.2

 Norway (5)

75.2

81.2

57.4

90.2

 Peru (29)

55.0

58.8

44.2

64.1

 Philippines (41)

42.7

38.9

52.5

35.0

 Poland (27)

55.2

60.9

41.3

65.6

 Saudi Arabia (26)

58.1

61.7

50.9

62.5

 Singapore (10)

70.7

73.5

59.8

81.5

 South Africa (31)

53.6

44.3

46.5

78.5

 Spain (24)

58.6

72.9

28.1

78.3

 Sweden (8)

72.9

67.8

73.7

80.0

 Switzerland (11)

70.0

65.4

67.2

81.3

 Taiwan (34)

51.8

40.8

51.9

69.3

 Thailand (43)

40.6

35.2

40.0

50.0

 Turkey (39)

45.8

47.7

28.6

66.7

 UAE (22)

59.6

59.7

50.2

72.6

 UK (9)

71.6

73.9

59.8

84.4

 Uruguay (20)

60.7

62.1

49.2

74.4

 USA (19)

61.4

60.9

63.6

59.2

Average

61.0

62.2

51.7

72.1

-        ENDS   -

About the Mercer CFA Institute Global Pension Index

 

The Global Pension Index benchmarks retirement income systems around the world highlighting strengths and shortcomings in each system and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.

 

The Global Pension Index is a collaborative research project sponsored by CFA Institute, the global association of investment professionals, in collaboration with the Monash Centre for Financial Studies (MCFS), part of Monash Business School at Monash University, and Mercer, a global leader in redefining the world of work and reshaping retirement and investment outcomes.

 

This year, the Global Pension Index compares 43 retirement income systems across the globe and covers two-thirds (65 per cent) of the world’s population. The 2021 Global Pension Index includes four new systems – Iceland, Taiwan, UAE and Uruguay.

 

The Global Pension Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity to measure each retirement system against more than 50 indicators.

 

For more information about the Mercer CFA Institute Global Pension Index, click here.

 

About Mercer

Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 78,000 colleagues and annual revenue of over $18 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.

 

About CFA Institute

CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion of ethical behavior in investment markets and a respected source of knowledge in the global financial community. Our aim is to create an environment where investors’ interests come first, markets function at their best, and economies grow. There are more than 175,000

CFA® charterholders worldwide in more than 160 markets. CFA Institute has nine offices worldwide and there are 160 local societies. For more information, visit www.cfainstitute.org or follow us on LinkedIn and Twitter at @CFAInstitute

 

About the Monash Centre for Financial Studies (MCFS)

A research centre based within Monash University's Monash Business School, Australia, the MCFS aims to bring academic rigour into researching issues of practical relevance to the financial industry. Additionally, through its engagement programs, it facilitates two-way exchange of knowledge between academics and practitioners. The Centre’s developing research agenda is broad but has a current concentration on issues relevant to the asset management industry, including retirement savings, sustainable finance and technological disruption.

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