Countries with unsustainable retirement systems must look to those with the most sustainable systems for help and take action now or risk intergenerational equity issues, disappointed participants and the need for more drastic moves in the future, warns the latest Melbourne Mercer Global Pension Index.
The ninth annual report, which studies 30 countries and covers 60% of the world's population, highlighted the need for countries to address sustainability when considering retirement reform.
Japan, Austria, Italy and France were cited as examples of developed economies with retirement systems that do not represent a sustainable model to support current and future generations in old age.
"Increasing life expectancies and low investment returns are having significant long-term impacts on the ability of many systems around the world to deliver adequate retirement benefits both now and into the future," said Jacques Goulet, president of health and wealth at Mercer, in a news release accompanying the report. "These pressures have alerted policymakers to the growing importance of intergenerational equity issues."
The report features an index of countries' retirement provisions, analyzing the 30 systems against more than 40 indicators to gauge adequacy, sustainability and integrity. A new factor in this year's analysis was real economic growth, as that indicator "provides for a more robust and relevant sustainability subindex for retirement income systems around the world," said the report.
For the sixth year running, Denmark retained the top position in the index with an overall score of 78.9 out of a possible 100. Last year the country scored 80.5. The country's score fell "primarily due to the inclusion of the new economic growth question," said the report.
Ranking last was Argentina, with a score of 38.8, slightly improved from 37.7 in the 2016 index. Improvements to a score could be made by increasing coverage of employees through automatic enrollment, as well as other measures. Argentina's score improved due to the inclusion of the new economic growth measure.
The U.S. saw its score improve to 57.8 in the 2017 index, from 56.4 in 2016. This was primarily due to the allowance for voluntary occupational plans in the scoring. The report said the U.S. could increase its index value by "reducing pre-retirement leakage by further limiting the access to funds before retirement," raising the state pension age and the minimum access age to receive benefits from private plans, and by introducing a requirement that part of the retirement benefit must be taken as an income stream, said the report.
The U.K. saw its value increase to 61.4 in 2017, from 60.1 in 2016. Improvements to the score could be made by increasing the level of contributions to occupational plans, among other changes, the report said.
The index is available on Mercer's website.