Netherlands and Australia boast the best retirement income systems, but the UK’s has improved recently and is ranked 6th globally, according to a report by consultancy Mercer and the Australian Centre for Financial Studies.
In the annual Melbourne Mercer Global Pensions Index, Netherlands and Australia were graded B+, while Switzerland, Sweden, Canada and the UK were graded B, meaning the pension system has a sound structure with many good features, but with some areas for improvement. Out of 16 countries assessed, Japan, India and China were given a D, due to major weaknesses in their pension system, while Chile was placed slightly ahead of a group of Poland, Brazil, USA, Singapore, France and Germany.
Mercer Senior Partner and author of the report, Dr David Knox, said, “Given the current economic situation, the risk of governments not being able to financially support their aging population is becoming more of a reality. Significant pension reform needs to be made now. The best pension systems adopt a multi-pillar approach to spread these long-term risks between governments, employers and individuals”. He added: “Each country has to consider its own social, economic, political, cultural and historical circumstances, but despite the differences in the history and development of each country’s system there are some common challenges around the world.”
According to the report, the UK has stayed in 6th placed for the third year running, but improved its score due to increases in projected pensions relative to pay, improved population coverage of pension schemes and increased savings rates. In 2012 to 2013, the UK should further improve due to increases in minimum pensions, increased coverage of occupational pension schemes and auto-enrollment.
Mercer UK actuary Glyn Bradley said: “The UK is making real progress in developing a solid, sustainable pensions system, but more needs to be done if we want to consider our system best in class. Reforms identified by the index that would improve the UK’s position are raising the minimum pension workers on low incomes can expect to receive; increasing the number of employees in occupational pension schemes and raising the level of household savings.”
He added that compulsory pension contributions would push the UK up the index and auto-enrolment. From 2012, the UK will begin to auto-enroll millions of UK employees into private pension schemes and this will improve its rating. Increasing state pension and retirement ages to reflect increasing life expectancy should also improve the effectiveness of a pension system, as would reducing access to savings before retirement and improving pensions for the self-employed.