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The Netherlands (80.5) and Canada (76.2) scored highest in this index due to the level of minimum public pension and a relatively high net replacement rate of income for median income earners.
Toronto (16 October 2009) – Canada’s retirement income system has ranked fourth - just behind Sweden - in a world first global pension index that compares private and public pension systems from around the world and ranks them based on adequacy, sustainability, and integrity.
The recently released inaugural Global Pension Index compares the retirement income systems of 11 countries, across five continents. The Index, produced by Mercer, and funded by the Victorian State Government in Australia, is the first time that the retirement income systems of several countries – some of which are held up as best practice – have been compared and ranked on a basis that considers a retirement income system in its entirety.
The Netherlands obtained top ranking in the Melbourne Mercer Global Pension Index with a score of 76.1 out of a maximum of 100, followed by Australia (74.0), Sweden (73.5) and Canada (73.2).
The report recommended Canada’s system could be improved by:
- increasing the level of coverage of employees in occupational pension schemes, possibly through a more efficient system
- introducing a mechanism for ensuring that voluntary retirement savings are preserved for retirement purposes
- introducing a mechanism to increase the pension age as life expectancy continues to increase
- increasing the level of household savings.
No country in the Melbourne Mercer Global Pension Index was classed as having an A-grade system (obtaining a score greater than 80), proving even the world’s most advanced pension models still need refinement to ensure they are robust enough to support the world’s rapidly ageing population.
The countries with the lowest ranking retirement income systems were Japan with a score of 41.5, China (48.0) and Germany (48.2). While these countries don’t fall into the lowest grade E category, which corresponds to a score below 35, the efficacy and sustainability of their systems will be in doubt if major weaknesses are not addressed.
The overall index considers results from more than forty indicators which reflect certain features that are desirable in all retirement income systems. These characteristics have been grouped into adequacy, sustainability and integrity.
The adequacy of benefits – or how much income is available to a retiree – was given the highest rating in the index. The Netherlands (80.5) and Canada (76.2) scored highest in this index due to the level of minimum public pension and a relatively high net replacement rate of income for median income earners. Japan had the lowest score at 39.2.
Participation in private pension plans and the level of pensions assets (expressed as a % of GDP) were the two major factors in the sustainability sub-index. Sweden (75.2) and Australia (71.0) rated the highest on this sub-index, while Japan (34.4) and China (38.5) scored the lowest. Canada was in fifth position with a score of 64.2.
The Melbourne Mercer Global Pension Index also took into consideration the integrity of the private pension provisions which is important in maintaining the community’s confidence in the system. Based on an assessment of four key areas – prudential regulation, governance, risk protection and communication – the highest rating countries for the integrity sub-index were the Netherlands (88.2), Australia (87.8) and the UK (86.3). Canada ranked fifth with a score of 80.9.
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