Tension between pension adequacy and sustainability is growing across the world, according to the annual Melbourne Mercer Global Pension Index.
The Netherlands and Denmark have the best global pension systems, with scores of 80.3 and 80.2, respectively, and both achieving A grades. They scored highly on adequacy and sustainability, while other European countries, such as Austria, Italy and Spain, scored B grades on adequacy and received E grades for sustainability. The scores are determined by considering 40 different indicators.
Canada holds an overall rating of 68, up from 66.8 in 2017, boosted by adequacy at 72.1 and integrity at 78.2, but pulled down somewhat by a sustainability score of 56.
Read: Canada’s pension system keeps B grade despite retirement age reversal
“Canada’s multi-pillared approach of providing universal government programs, combined with a tax system that promotes voluntary pension and savings programs, continues to provide Canadians with a strong retirement system,” said Scott Clausen, partner in Mercer Canada’s wealth business, in a press release.
While the Canadian pension landscape remains strong, low coverage in the private sector, rising debt levels and health-care costs were highlighted by the report as major concerns for the future.
“Canadian governments are already taking steps to help ensure the workforce will be able to adapt to changing needs with the upcoming enhancements to the Canada and Quebec pension plans, but more work needs to be done — organizations, government and employees need to come together to drive the future of work,” said J.P. Provost, senior partner in Mercer Canada’s wealth business. “Continuing efforts to find attractive retirement options for Canada — including reducing costs, easing plan management responsibilities, providing Canadians with access to better outcomes and reconsidering increasing the eligibility age for public pension plans to reflect increasing life expectancy — should remain an important focus.”
Read: CPP enhancements to increase total benefits by 44% by 2070: study
The index found the U.S. lagging behind Canada with an overall score of 58.8. China’s rating fell slightly from 46.5 in 2017 to 46.2 in 2018, while Britain saw a small increase from 61.4 in 2017 to 62.5 in 2018, largely due to an increase in the level of its auto-enrolment contributions.
Moving towards greater sustainability, while maintaining the balance of adequacy, remains an issue the world over, the report noted. “It’s a challenge that policy-makers are grappling with,” said David Knox, author of the report and a senior partner at Mercer Australia. “For example, a system providing very generous benefits in the short term is unlikely to be sustainable, whereas a system that is sustainable over many years could be providing very modest benefits. The question is: what’s an appropriate trade-off?
“However, with changes in the way people are working around the world, we need to ensure these schemes include everyone so that the whole workforce is saving for the future,” he said. “This includes contractors, self-employed and anyone on any income support, be that parental leave, disability income or unemployed benefits.”
So what are some of the world’s leading pension systems achieving? “In some countries, broad coverage has been successfully accomplished through compulsory workplace pension systems or, in some cases, auto-enrolment arrangements,” said Knox.
Read: How does Canada’s public pension system measure up globally?