The pension systems of Singapore and Chile have overtaken the UK in a global ranking of countries’ abilities to meet the retirement needs of their populations, based on OECD data.
The UK has slipped from seventh to ninth in the annual Melbourne Mercer Global Pension Index, which measures the adequacy, sustainability and integrity of retirement systems.
“[The UK] still struggles with issues around sustainability. This is mainly due to the number of people covered by our pensions system and the relatively low level of contribution rates,” said Brian Henderson, head of Mercer’s UK defined contribution business. He nevertheless said the introduction of “auto-enrolment” into workplace schemes and reform of the state pension were positive steps.
“We are going in the right direction but it is at a glacial pace compared with other, more nimble countries,” added Mr Henderson, who said the UK should raise the minimum pension for low-income pensioners, raise the level of household saving and increase the labour force participation rate for older workers.
Denmark, the Netherlands and Australia held on to the top three places in the index, produced by Mercer and the Australian Centre for Financial Studies.
However David Knox, senior partner at Mercer, said countries such as Australia that had built impressive defined contribution pension systems still faced significant challenges.
“The conversion of DC benefits into adequate and sustainable retirement incomes remains a largely unresolved problem in many countries, including Australia,” said Mr Knox. “There has to be a fundamental change in focus from wealth accumulation to the provision of retirement income.”
Indonesia, a new addition to the now 20-strong index, ranked bottom. The adequacy of its retirement income was found to be particularly poor.
More broadly, Asia continued to dominate the lower reaches of the rankings. India, South Korea, Japan and China occupy the next four places. The US was 11th, sandwiched between Germany and Poland.
Brazil’s pension system was adjudged the least sustainable, while Mexico scored lowest for “integrity”, which encapsulates the strength of regulation and governance, the protection provided to savers and the level of communication.