As economies large and small grapple — or fail to grapple — with the social and economic effects of aging populations, the issue of pension adequacy is becoming one of the most challenging dilemmas of the 21st century.
Developed nations such as the U.S. and the U.K. are limping through a global recession and, faced with enormous deficits, are seeking long-term solutions that might fray the social safety nets their citizens count on for retirement. Meanwhile, emerging nations from Brazil to China and India cannot ignore retirement realities such as demographic trends in their populations and governance issues, despite their impressive economic growth.
Unfortunately, obtaining a clear view of the world's diverse retirement income systems — in an effort to codify constructive approaches to the global retirement challenge — is difficult. There are, obviously, no perfect systems, while each has evolved from its country's unique economic, social, cultural, political and historical circumstances.
This led Mercer to partner with the Australian Center for Financial Studies for a unique comparative study, the Melbourne Mercer Global Pension Index, which launched in 2009 with a rating of 11 countries. The index expanded this year to 14 countries: Australia, Brazil, Canada, Chile, China, France, Germany, Japan, Netherlands, Singapore, Sweden, Switzerland, the United Kingdom and the United States. Each country was rated on the basis of three key factors: pension adequacy (derived from such indicators as benefits, savings, tax support and growth assets); sustainability (including such indicators as demography, government debt and total assets); and integrity (including such indicators as regulation, governance, communication and cost).
Not surprisingly, none of the 14 countries achieved an index value above 80 — an “A” rating descriptive of a first-class, robust retirement income system that delivers good benefits, is sustainable and has a high level of integrity. Indeed, only five nations — Netherlands, Switzerland, Sweden, Australia and Canada — achieved a “B” rating for their sound structures (despite having areas for improvement). Most fell into the “C” category — the U.S., U.K., Chile, Brazil, Singapore, France, and Germany — for having system with good features but also major risks and shortcomings that should be addressed.