Receiving a C+ grade might not fill a person with optimism, but it could be worse. The UK pension system has been awarded just that in the latest Melbourne Mercer Global Pension Index (MMGPI), putting it in 15th place out of 34 countries, reports
FT Adviser’s Maria Espadinha.
The index ranks global retirement income systems by adequacy, sustainability and integrity (download
here).
According to Espadinha, the index warns that the UK’s pension system has major risks that need to be addressed, such as “relatively low levels of provision offered to the poorest pensioners and the self-employed, and the removal of requirements to take retirement savings as an income stream”. But it scores well on the integrity of its system, with a good approach to regulation and governance, says Brian Henderson, partner at Mercer.
The overall score for the UK has increased since 2017, going from 61.4 to 62.5 (out of 100), which Espadinha reports as a “result of the increase in the level of auto-enrolment contributions”.
The leaders of this year’s index are the Netherlands and Denmark, with scores of 80.3 and 80.2 respectively, giving their systems an A grade. The UK trails countries such as Colombia and Chile, but is ahead of France and the USA.
FT Adviser article
The system in South Africa
South Africa is behind the UK in the MMGPI rankings, with an overall score of 52.7 (C grade), according to Ingé Lamprecht for Moneyweb, a South African news site. The country did relatively well with regard to integrity of its retirement income system, but the report raises concerns about the South African pension system’s adequacy and sustainability.
Lamprecht writes: “South Africa has been on a gradual yet rocky road with regard to retirement reform, as many pensioners struggle to make ends meet.” However, new regulation will require retirement funds to put a default investment, preservation and annuity strategy into operation by 1 March 2019.
South Africa’s low economic growth, government debt and no minimum level of mandatory contribution are observed as shortcomings and risks.
The report recommends increasing the support for poor pensioners and the coverage of employees in occupational pension schemes, which would raise the level of contribution.
Moneyweb article
Singapore’s growing lifespanHigher up in the rankings is Singapore, with a rating of 70.4 (B grade). Siow Li Sen, writing for
The Business Times, says that Singapore has held this accolade for the tenth consecutive year.
Although the country’s score is higher than last year – it increased from 69.4 – there is room for improvement. The MMGPI says Singapore can advance its system by raising the Central Provident Fund (CPF) withdrawal age as life expectancies rise. According to the
World Bank, the average life expectancy in Singapore is now 82.80 years, in comparison to 65.66 in 1960. The CPF is a compulsory comprehensive savings plan for working Singaporeans and permanent residents. Currently, upon turning 55, members can withdraw their savings after choosing how much to set aside as a retirement fund with CPF – the amount varies per cohort.
Garry Hawker, Mercer’s director of strategic research for growth markets, says that although Singapore has one of the most developed pension systems in Asia, this could be improved by extending the CPF offering to non-permanent residents, in addition to increasing the withdrawal age.
The Business Times article
The MMGPI is an interesting and important insight into global pensions. Although the UK has scored well in one area, the C+ grade on its pension report puts it squarely in the 'could do better' category overall.
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