Covid-19 is exacerbating retirement insecurity across the globe and and is causing sustainability problems for the UK’s pension scheme.
This was the conclusion from the Mercer CFA Institute Global Pension Index which compares 39 global retirement income systems, which cover around two-thirds of the world population.
Looking at the UK results, the UK index value had increased marginally — from 64.4 in 2019 to 64.9 in 2020. It is ranked 15th, when looking at various global pension systems. However Mercer says a closer look at these UK figures show high values for integrity, i.e. the level of trust in the system’s ability to deliver, but low scores on adequacy and sustainability.
Mercer senior partner and lead author of the study, Dr David Knox says: “The economic recession caused by the global health crisis has led to reduced pension contributions, lower investment returns and higher government debt in most countries.
“Inevitably, this will impact future pensions, meaning some people will have to work longer while others will have to settle for a lower standard of living in retirement.
“It is critical that governments reflect on the strengths and weaknesses of their systems to ensure better long-term outcomes for retirees.”
Mercer’s UK Head of Wealth Benoit Hudon says: “There are numerous levers the Government could pull to improve the UK pensions system, though first a fundamental debate is needed to agree the optimal balance between security, adequacy and affordability.
“It is almost impossible for any national pensions system to achieve these three objectives fully and simultaneously. However, we believe too much focus has been put on security at the expense of adequacy and affordability, leaving pensions savers with low investment returns.
“We need to rethink what represents an acceptable level of risk into our pension system. For example, we believe we should increase access to growth assets, to improve the sustainability of the system, support the economy, and increase the potential for achieving better outcomes for pension savers.”
Margaret Franklin, CFA, president and CEO at CFA Institute says: “We have learned a lot about the effectiveness of pension systems over the years, and while there is no single pension system model that will work for every country, the Global Pension Index provides comparative information to differentiate what is possible and practical in each market.”
The Netherlands had the highest index value (82.6) and has retained its top position in the overall rankings, notwithstanding the significant pension reforms occurring in that country. Thailand had the lowest index value (40.8).
For each sub-index, the highest scores were the Netherlands for adequacy (81.5), Denmark for sustainability (82.6) and Finland for integrity (93.5). The lowest scores were Mexico for adequacy (36.5), Italy for sustainability (18.8) and the Philippines for integrity (34.8).