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Ageing populations, declining birth rates and a lack of robust retirement systems will see many countries struggle under the burden of providing adequate pensions, according to the 2016 Melbourne Mercer Global Pension Index.
Now in its eighth year, the index covers nearly 60% of the world’s population, measuring 27 systems against more than 40 indicators to gauge their adequacy, sustainability and integrity. It includes diverse countries across the Americas, Europe and Asia Pacific regions; this year examining Malaysia and Argentina for the first time.
Globally, only Denmark and the Netherlands was able to reach “A Grade”, which implies the countries have a robust retirement income system that delivers good benefits, is sustainable and has a high level of integrity.
In Asia, Singapore retained its highest ranking in the region for the fourth consecutive year, while ranking seventh globally. The report stated the nation saw a healthy increase in both the adequacy and sustainability scores.
Overall, Singapore earned a “B Grade” which means it has a sound pension structure with many good features, but has some areas for improvement.
Malaysia, which was included in the index for the first time, was given a “Grade C”, its system has some good features, but also major risks and shortcomings.
The index suggested Malaysia could enhance the Employee Provident Fund (EPF) by increasing the pension age as life expectancy continues to increase and increasing the labour force participation rate as life expectancy rises. The index said the EPF should introduce a requirement that part of the retirement benefit must be taken as an income stream.
The score for the two biggest economies in Asia, China and Japan, both saw a decrease in their total scores and were graded D. The decline in China’s score was primarily due to a reduction in the assumed level of support provided to the poor.
The author of the report and senior partner at Mercer, Dr David Knox, said the impact of longer life expectancies, combined by global declining birth rates, was much more significant than had been recognised by many governments and communities.
“This year’s report includes a projected old-age dependency ratio which will raise alarm in many regions. The range of the ratio is stark – predicting that in South Africa there will be one retiree for every seven people of working age while in Japan the number drops to one retiree for every 1.44 people of working age by 2040.”
Life expectancies at birth have increased by seven to 14 years in most countries during the past 40 years, equating to an average of one additional year for every four years – a significant result that cannot be ignored in the ongoing reform of the pension system.
“The declining birth rates, increasing longevity, economic development and many other factors will continue to affect the pension systems across Asia, but we are pleased to see that Asian countries are proactively addressing these challenges based on their unique situation. The efforts of some are clearly reflected in their total score in this index,” Dr Knox said.
“There is, of course, always room for improvement and we are confident that Asian governments will closely monitor their people’s needs and address them effectively.”
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