Netherlands and Denmark is the most prepared for tomorrow’s ageing world, says the Melbourne Mercer Global Pension Index.

Measuring 34 pension systems, the Index shows that the Netherlands and Denmark, with scores of 80.3 and 80.2 respectively both offer A-Grade world class retirement income systems with good benefits - clearly demonstrating their preparedness for tomorrow’s ageing world.

“However, common across all results was the growing tension between adequacy and sustainability.

“This was particularly evident when examining Europe’s results. Denmark, Netherlands and Sweden score A or B grades for both adequacy and sustainability, whereas Austria, Italy and Spain score a B grade for adequacy but an E grade for sustainability thereby pointing to important areas needing reform.”

Commenting on Malaysia’s Global Pension Index score, Mercer Malaysia chief executive officer,
Hash Piperdy said, “Malaysia maintains a stable C rating but action needs to be taken to address our ageing nation – over 5 million Malaysians are expected to be over 60 years old by 2030, and nearly 10 million will be over 60 by 2050*.

“Malaysia’s sustainability score has decreased from 61.2 to 60.5, based on the index.

“There still exists a gap which poses risks in terms of the long-term sustainability in the system due to the ageing population, and the need to address it is crucial as there are still many Malaysians without sufficient pension savings on top of the Employees Provident Fund,” he comments.

Hash adds, it is high time for industry and community groups to look into Private Retirement Schemes (PRS) and other ways to boost long term savings more seriously.

Author of the study and Senior Partner at Mercer Australia, Dr David Knox says that the natural starting place to having a world class pension system is ensuring the right balance between adequacy and sustainability.

“It’s a challenge that policymakers are grappling with,” says Dr Knox. “For example, a system providing very generous benefits in the short-term is unlikely to be sustainable, whereas a system that is sustainable over many years could be providing very modest benefits. The question is – what’s an appropriate trade-off?”

Dr Knox adds that it’s not enough for a system to be sustainable or adequate; an emerging dimension to the debate about what constitutes a world class system is “coverage” and the proportion of the adult population participating in the system.

“In some countries, broad coverage has been successfully accomplished through compulsory workplace pension systems or, in some cases, auto-enrolment arrangements,” he says.

“However, with changes in the way people are working around the world, we need to ensure these schemes include everyone so that the whole workforce is saving for the future. This includes contractors, self-employed, and anyone on any income support, be that parental leave, disability income or unemployed benefits.”

Moving forward, some pension systems face a steeper path to long term sustainability than others, and all start from a different origin with their own unique factors at play.

The index suggests every country to take action and move towards a better system. In the long-term, there is no perfect pension system, but the principles of “best practice” are clear and nations should consider creating policy and economic conditions that make the required changes possible.

With the desired outcome of creating better lives, this year’s Index provides a deeper and richer interpretation of the global pension systems.

Having now expanded to include Hong Kong SAR, Peru, Saudi Arabia and Spain; the Index measures 34 systems against more than 40 indicators to gauge their adequacy, sustainability and integrity. This approach highlights an important purpose of the Index – to enable comparisons of different systems around the world with a range of design features operating within different contexts and cultures.

This year’s Index reveals that many North-Western European countries lead the world in developing world class pension systems.

The Netherlands, with an overall score of 80.3, beat Denmark to first place, a spot held by Denmark for six years, by 0.1. Finland bumped Australia (72.6) out of third place with an overall score of 74.5 and Sweden (72.5) coming in fifth place.

“The Index is an important reference for policymakers around the world to learn from the most adequate and sustainable systems,” Dr Knox says. “We know there is no perfect system that can be applied universally, but there are many common features that can be shared for better outcomes.”

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