GLOBAL - The Netherlands, Australia and Switzerland have the world's best pension systems in terms of adequacy, sustainability and integrity, but all 16 countries surveyed in the 2011 Melbourne Mercer Global Pension Index are under stress from economic and political strains and require "ongoing" reforms to guarantee robust arrangements to support their aging populations.
"We're all living longer and we need for governments to react to that," said David Knox, Mercer senior partner and author of the report. "There is an associated need to encourage people to work longer and increase the worker participation rate to older ages, and to increase the coverage of private pension plans to pick up more employees and the self-employed."
This is the third year the Melbourne Mercer Global Pension Index has been released, and this year features data from the Netherlands, Australia, Switzerland, Sweden, Canada, the UK, Chile, Poland, Brazil, the United States, Singapore, France, Germany, Japan, India and China. Countries are ranked on a weighted, quantified measure based on analysis of the system's adequacy, sustainability and integrity. The Netherlands received a score of 77.9 out of 100, Australia received 75.0 and Switzerland received 72.7. Japan, India and China were the poorest scoring countries in the index, all in the low 40s, with the average rating at 60.5.
The 2011 report's new entrants, China and India, mean that the overall index has a broad array of economies and demographics, with various factors weighing more in some countries than others, said Deborah Ralston, director of the Australian Centre for Financial Studies, which partners in the research for the report.
"Demographics of an aging population matter more in some countries than in others," Ralston said. "There is a difference between a mature market like the Netherlands, and new ones, like India and China. The challenge for those countries is that they are just developing social security systems, whereas for more mature markets, it is an issue of fine tuning and ensuring sustainability."
Knox noted that in addition to differing demographic pressures across the 16 countries, the impacts of the global financial crisis and equity market volatility had not been felt uniformly across the analysed countries.
"The global financial crisis had an impact on the equities market, and those countries with a higher exposure to equities have felt that more than countries without that," Knox said.
While no country received an "A" grade under the report's methodology, the Netherlands and Australia received a B+. The Netherlands held onto its first place ranking from 2010, while Australia progressed from fourth place to second off the back of a real increase in the size of the age pension and higher net household savings rate. The report concludes that the best pension systems adopt multi-pillar approaches to spread the long-term risks and costs of retirement provision between governments, employers and individuals. One benefit of the report is to provide comparability and an idea of best practice, Knox said.
"We can highlight what works and what doesn't work, and you really begin to understand the issues when you look at them on a comparative basis," he said. "If you look at the Netherlands and Australia, both systems feature broad coverage - in Australia, it's 85% of the workforce - and if the levels of contributions aren't ideal, the arrangements are there and they're in place."
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