The Netherlands ended Denmark’s six-year winning streak by clinching first place in the 10th-annual Melbourne Mercer Global Pension Index (MMGPI), released on Monday. Finland’s system ranked third, followed by Australia’s.
The index measures 34 pension systems, revealing both the Netherlands and Denmark to have A-grade, world class retirement income systems with scores of 80.3 and 80.2 respectively.
Common across all results was the growing tension between adequacy and sustainability, author of the study and a senior partner at Mercer, David Knox said.
Australia has dropped from third to fourth place in the world, weighed down by declines in household savings and the tougher age pension assets test.
In 2018, Australia’s overall index value was 72.6, down from 77.1 last year. Australia’s peak score was 79.9, in 2014.
The index is based on an assessment of both the public and private pension systems using 40 indicators to gauge adequacy, sustainability and integrity.
Knox, said ensuring the right balance between adequacy and sustainability was the “natural starting place” for a world-class pension system.
“It’s a challenge policymakers are grappling with,” Knox said. “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?”
Knox said it was not enough for a system just 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. “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, the self-employed and anyone on any income support, be that parental leave, disability income or unemployed benefits.”
In 2018, Hong Kong SAR, Peru, Saudi Arabia and Spain were included in the index for the first time.