Lifestyle

Best and worst pension systems in the world

Staff Writer

 ·20 Oct 2015

Mercer has released its Global Pension Index for 2015, ranking and comparing the best and worst pension systems in the world.

The primary objective of the research is to benchmark each country’s retirement income system – while an important secondary purpose is to highlight the shortcoming in each country’s system and to suggest possible areas of reform.

The index values represent the weighted average of a country’s capacity to deliver benefits to pensioners – presently and in the future – in 25 regions across the world.

The overall index is based on the performance in three sub-indices, covering over 40 indicators.

The adequacy index represents the benefits that are currently being provided to pensioners, while the sustainability index focuses on the future, measuring various indicators that will influence the current system, and whether it will be able to provide benefits into the future.

The integrity index measures indicators that influence the overall governance of the system.

According to Mercer’s findings, Denmark remains top in the world for its pension system, which scored and overall total of 81.7. This is followed by the Netherlands (80.5) and Australia (79.6).

Of the countries assessed, India (40.3) scored the lowest for its system, below South Korea (43.8) and Japan (44.1).

Global Pension Index

South Africa’s performance

South Africa scored a C on the index, indicating that it has a retirement/pension system that has some good features, but also has major risks and shortcomings that should be addressed.

“Without improvements, (the system’s) efficacy and long-term sustainability can be questioned,” the report said.

South Africa’s retirement income system comprises a means-tested public pension as well as voluntary occupational schemes.

The South African pension index value decreased slightly from 54.0 in 2014 to 53.4 in 2015 due to a number of small changes.

The country scored highest in the integrity sub-index (77.7 – up from 76.3 in 2014), though performance in the adequacy and sustainability sub-indices remains fairly low (47.3 and 43.0, respectively).

According to the report, South Africa could improve its standing by increasing the minimum level of support for the poorest old  people, as well as increasing the coverage of employees in occupational pensions schemes.

This would increase the level of contributions and assets.

Introducing a minimum level of mandatory contribution into a retirement savings fund would also help.

Many countries have pension fund assets invested in a range of assets – from cash and short-term securities, through to bonds and equities and other alternative assets such as property, venture capital and infrastructure.

South Africa and Australia have a high level of investment (70%) in growth assets, including equities and property – the highest levels of all countries assessed.

“For countries with a relatively high exposure to growth assets, there was significant declines in the value of assets in 2010 and 2011, reflecting the consequences for the global financial crisis in 2007 and 2008,” the report said.

“However, since that time, there has been a steady recovery in the level of pension assets in each country as equity markets recovered.

“There is no doubt that this volatility can have a direct impact (both positive and negative) on the adequacy of assets accumulated for the provision of retirement benefits.”

More on retirement in South Africa

Why South Africa is a good place to die

R20 billion in unclaimed retirement funds in SA

Most South Africans are nowhere near ready for retirement

South Africa among the worst countries to retire in