The Melbourne Mercer Global Pension Index (MMGPI) is published by the Australian Centre for Financial Studies (ACFS) in collaboration with Mercer, with most of the funding from the State Government of Victoria, as part of its ongoing support for leadership in the financial services sector.
The primary objective of this research is to benchmark global retirement income systems so we can all learn from each other and thereby improve our systems and generate better outcomes for our present and future retirees.
CALCULATING THE MELBOURNE MERCER GLOBAL PENSION INDEX
THE GROWING TENSION BETWEEN ADEQUACY AND SUSTAINABILITY
The natural starting place to having a world class pension system is ensuring the right balance between adequacy and sustainability. However, policymakers are struggling to balance the twin goals of delivering financial security for their retirees that is both adequate for the individual and sustainable for the economy.
As highlighted in the opposite chart, all systems should aim to adjust their settings so they are moving towards the top right quadrant. Through the study, policymakers can understand the characteristics of leading systems and find ways to improve their own
MOVING TOWARDS A BETTER PENSION SYSTEM
To improve the provision of adequate and sustainable retirement incomes around the world, countries should consider the following recommendations:
- Gradually increase the average retirement age as life expectancies continue to rise
- Increase the level of savings, both inside and outside pension funds, to ensure that more people are less reliant on the government in their future retirement years
- Increase the coverage of private pensions across the labour force, including the self-employed and “gig” employees, to provide improved integration between various pillars
- Reduce the access of benefits by members before retirement to ensure that the funds are preserved until retirement
- Improve the transparency of the operations of pension plans thereby improving the understanding and trust of all stakeholders
WHAT DOES THE IDEAL SYSTEM LOOK LIKE?
There is no perfect pension system that can be applied universally, but there are many common goals that can be shared for better outcomes.
A minimum pension is provided to the poor that represents a reasonable percentage of average earnings in the community
At least 65% net (after tax) replacement rate at retirement for a full-time worker on an average income
At least 60% of accumulated retirement benefits to be taken as an income stream
At least 70% of the working age population should be members of private pension plans
Current pension fund assets should be more than 100% of GDP to fund future pension liabilities
Labour force participation rate for those aged 55-64 should be at least 70%
A strong prudential regulator supervising private pension plans
Regular member communications including the provision of personal statements, projected retirement income and an annual report
Clear funding requirements for both defined benefit and defined contribution schemes
WHAT IS THE MMGPI?
Delivers the world’s most comprehensive comparison of pension systems
Measures 34 retirement income systems against more than 40 indicators
Covers 60% of the world’s population
Reviews global pension systems and assesses the benefits they provide, their ongoing sustainability in the context of ageing populations and the level of trust and transparency within their operations
Includes Hong Kong SAR, Saudi Arabia, Spain and Peru as 2018 additions
Benchmarks a country’s pension system based on three sub-indices: Adequacy, Sustainability and Integrity
Highlights the common challenges facing many countries
Recommends actions for improvement for each country
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