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Here’s how well retirement income systems in Asia Pacific fare

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As ageing populations continue to pose a challenge to governments worldwide, policymakers are struggling to balance delivering adequate financial security for their retirees while keeping it sustainable for the economy.

Measuring 34 pension systems worldwide, the Melbourne Mercer Global Pension Index shows that the Netherlands and Denmark (with scores of 80.3 and 80.2 respectively) both offer A-Grade world class retirement income systems, topping the index globally.

In Asia Pacific, top performing countries are Australia, Singapore, and New Zealand, scoring 72.6, 70.4, and 68.5 respectively.

Zooming in on Singapore, the retirement income system is mainly based on the Central Provident Fund (CPF) which covers all employed Singaporean residents and permanent residents.

Commenting on how the Singaporean system could continue to grow and improve its Index score, Garry Hawker, director of strategic research for growth markets, Mercer, said: “The overall index value for the Singaporean system could be further increased by reducing the barriers to establishing tax-approved group corporate retirement plans; opening CPF to non-permanent residents; and increasing the age at which CPF members can access their savings that are set aside for retirement, as life expectancies rise.”

The research pointed out that a common point across all countries was the growing tension between adequacy (for the individual) and sustainability (for the economy). Author of the study and senior partner at Mercer Australia, Dr David Knox noted that the natural starting place to having a world class pension system is ensuring the right balance between adequacy and sustainability.

“It’s a challenge that policymakers are grappling with,” says Dr Knox. “For example, a system providing very generous benefits in the short-term is unlikely to be sustainable, whereas a system that is sustainable over many years could be providing very modest benefits. The question is – what’s an appropriate trade-off?”

 

Dr Knox added that it’s not enough for a system to be sustainable or adequate; an emerging dimension to the debate about what constitutes a world class system is “coverage” and the proportion of the adult population participating in the system.

He said: “In some countries, broad coverage has been successfully accomplished through compulsory workplace pension systems or, in some cases, auto-enrolment arrangements. However, with changes in the way people are working around the world, we need to ensure these schemes include everyone so that the whole workforce is saving for the future. This includes contractors, self-employed, and anyone on any income support, be that parental leave, disability income or unemployed benefits.”

A ranking of retirement income systems in Asia Pacific

#1 Australia
Overall index value: 72.6
Overall Grade: B
Adequacy: 63.4
Sustainability: 73.8
Integrity: 85.7

#2 Singapore
Overall index value: 70.4
Overall Grade: B
Adequacy: 64.4
Sustainability: 69.5
Integrity: 81.2

#3 New Zealand
Overall index value: 68.5
Overall Grade: B
Adequacy: 65.4
Sustainability: 63.4
Integrity: 80.6

#4 Malaysia
Overall index value: 58.5
Overall Grade: C
Adequacy: 45.2
Sustainability: 60.5
Integrity: 77.1

#5 Hong Kong
Overall index value: 56.0
Overall Grade: C
Adequacy: 39.4
Sustainability: 54.9
Integrity: 84.2

#6 Indonesia
Overall index value: 53.1
Overall Grade: C
Adequacy: 47.3
Sustainability: 49.5
Integrity: 67.4

#7 Japan
Overall index value: 48.2
Overall Grade: D
Adequacy: 54.1
Sustainability: 32.4
Integrity: 60.7

#8 South Korea 
Overall index value: 47.3
Overall Grade: D
Adequacy: 45.4
Sustainability: 48.1
Integrity: 49.3

#9 China
Overall index value: 46.2
Overall Grade: D
Adequacy: 53.4
Sustainability: 38.0
Integrity: 46.0

#10 India
Overall index value: 44.6
Overall Grade: D
Adequacy: 38.7
Sustainability: 43.8
Integrity: 55.2

Click through the gallery for an overview of each APAC country’s retirement income systems.

Infographic / Mercer
Photo / 123RF



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