Global Pension Index guide to better NZ retirement

Global Pension Index guide to better NZ retirement

Global Pension Index guide to better NZ retirement system

  • 21 October 2013
  • New Zealand, Auckland
  • Australia improves score again but stays steady in 3rd spot
  • Fundamental change in approach to post-retirement solutions needed
  • Index increases to 20 countries, covering over 55% of world population
  • Asian countries improve their score in 2013
     

The 2013 Melbourne Mercer Global Pension Index was released this week with Denmark, The Netherlands and Australia holding onto the top three spots.  As well as comparing 20 retirement income systems around the world, the report focusses on post-retirement solutions, which is particularly relevant for New Zealand given the release of the 2013 Review of Retirement Income Policies this week.

Denmark became the first country to achieve an ‘A’ Grade in 2012 and has held onto the position in 2013 despite their overall score falling to 80.2 from 82.9.  Denmark’s well-funded pension system with its high level of assets and contributions, the provision of adequate benefits and a private pension system with developed regulations are the primary reasons for its top spot. 

Closer to home, Stronger Super reforms have improved Australia’s performance in the 2013 Melbourne Mercer Global Pension Index. Their overall score increased from 75.7 out of a possible 100 in 2012 to 77.8 in 2013, however their overall ranking remains at third position.  Netherlands held onto the second position, but Australia is closing the gap and has an ‘A’ Grade in sight.

Dr David Knox, Senior Partner at Mercer and author of the research, said, “Whilst A-grade scores are difficult to achieve they are not exclusively reliant on compulsory savings.  Although New Zealand has not been included in this research to date we know there are many strengths in the system including a universal flat-rate indexed pension, KiwiSaver with auto-enrolment and voluntary workplace and personal pension plans.

“However, as countries grapple with rising life expectancies, increased government debt, uncertain economic conditions and a global shift to defined contribution (DC) plans, there are still many lessons to be learnt and new solutions to be found, particularly for the post-retirement years.

“A DC system is well established in many countries and it is clearly heading this way in many others.  However, the conversion of DC benefits into adequate and sustainable retirement incomes remains a largely unresolved problem in many countries.

“Developing effective and sustainable post-retirement solutions has to be one of the most critical challenges for policy makers and retirement industries around the globe,” said Dr Knox.

Suggested measures to improve Australia’s system include introducing a requirement that part of the retirement benefit must be taken as an income stream in addition to increasing the labour force participation rate amongst older workers. While the UK is expecting to increase its score in future years as they follow NZ and adopt auto-enrolment, thereby increasing coverage and the level of retirement savings.

Professor Deborah Ralston, Executive Director of the Australian Centre for Financial Studies said the global response to the Index continues to indicate its value to government, industry and academia as they debate how best to provide for an ageing population.

“Many of the challenges relating to ageing populations are similar, irrespective of each country’s social, political, historical or economic influences.  Many of the desirable policy reforms to alleviate these challenges are also similar and the Index aims to highlight the best solutions and share them globally,” said Professor Ralston.

The Melbourne Mercer Global Pension Index is now in its fifth year and has increased from 11 countries in 2009 to 20 countries in 2013 with Mexico and Indonesia the latest additions.  It now covers more than 55% of the world’s population. The Index looks objectively at both the publicly funded and private components of a system as well as personal assets and savings outside the pension system.  It measures the adequacy, sustainability and integrity of a country’s pension system and is produced by Mercer and the Australian Centre for Financial Studies and is funded by the Victorian State Government.

The research identifies possible areas of reform for each country that would provide more adequate retirement benefits, increased sustainability, and greater trust in the pension system. 

About the Australian Centre for Financial Studies

The Australian Centre for Financial Studies (ACFS) is a not-for-profit consortium of Monash University, RMIT University and Finsia (Financial Services Institute of Australasia) which was established in 2005 with seed funding from the Victorian Government.
The mission of the ACFS is to build links between academics, practitioners and government in the finance community to enhance research, practice, education and the reputation of Australia's financial institutions and universities, and of Australia as a financial centre. ACFS conducts leading edge finance research, commentary and thought leadership.  More informatiion can be found at www.australiancentre.com.au and on the Index www.globalpensionindex.com.

About Mercer

Mercer is a global leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. Follow Mercer on Twitter @Mercer_NZ

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