Invest Victoria, the Investment Promotion Agency for the State of Victoria, Australia today launched its 5th annual Melbourne Mercer Global Pensions Index which objectively ranks both the publicly funded and private components of 20 country’s pension systems. The United Kingdom’s pension system, ranked 9th, improved its scores signaling that changes made to the UK’s pension system are starting to have an impact.
Overall the UK’s pension system achieved a ‘B’ grade and a score of 65.4 out of a possible 100 in 2013, up from 64.8 in 2012. A ‘B’ grade system has a sound structure, with many good features, but has some areas for improvement.
According to Brian Henderson, Head of Mercer’s UK Defined Contribution business, “There are huge changes occurring in the UK’s pension environment and the scores show that as a country we are moving forward. Notably, however, we still struggle with issues around sustainability. This is mainly due to numbers of people covered by our pensions system and the relatively low level of contributions rates. Auto-enrolment and state pension reform are just two things that will address this issue. All companies have passed their auto-enrolment staging dates and contributions rates have improved. The 2013 report should provide some encouragement to the UK’s policy makers. We are going in the right direction but it can be at a glacial pace. This report underlines that even the world’s most advanced retirement income systems require on-going improvements to ensure they’re robust enough to support a rapidly ageing population.”
The Index, which has become a valuable resource for financial services professionals, regulators, academics and governments provides details on current performance and includes suggestions for further improvements. The index showcases the depth and breadth of Victoria’s financial services research capabilities which are underpinned by strong public and private sector partnerships. The Index also highlights the city of Melbourne’s strengths in investment and fund management on the world stage.
Geoffrey Conaghan, Agent General, Invest Victoria, commented, “Melbourne is the institutional centre of a national A$1.8 trillion fund management market - the largest in Asia and the fourth-largest in the world - and has the highest levels of managed funds per capita in the world. The strength of analysis contained within the Melbourne Mercer Global Pension Index act as a great ambassador for Victoria’s financial services sector internationally – demonstrating not only its strengths in fund management but its role as the home of leading edge research.”
As well as ranking individual countries the research also identifies possible areas of reform for each country that would provide more adequate retirement benefits, increased sustainability, and greater trust in the pension system. Suggested measures to improve the United Kingdom’s system (Scores in Table 1) include:
• raising the minimum pension for low-income pensioners
• increasing the coverage of employees in occupational pension schemes
• raising the level of household saving
• increasing the labour force participation rate at older ages
The 2013 Index includes a special chapter on post-retirement solutions in a defined contribution (DC) world as well as suggested developments (Table 2).
Denmark, the Netherlands, and Australia held onto the top three spots in the Index. Denmark, who became the first country to achieve an ‘A’ Grade in 2012 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.
Dr David Knox, Senior Partner at Mercer and author of the research, said: “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. Australia has arguably been a trail blazer in terms of adopting a DC system. However, the conversion of DC benefits into adequate and sustainable retirement incomes remains a largely unresolved problem in many countries, including Australia.
“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.
“There has to be fundamental change in the focus from wealth accumulation to the provision of retirement income. This income must be delivered from an efficient and fair framework that is sufficiently robust to cope with the changing conditions that lie ahead,” said Dr Knox.
Professor Deborah Ralston, 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.
|
