Aging Populations Continue to Burden World Economies

Report finds policymakers struggling to balance retirement adequacy with economic sustainability.

Aging populations continue to confound governments worldwide as they struggle to assure financial security for retirees without overburdening their economies, according to the latest Melbourne Mercer Global Pension Index. 

However, the Australian Centre for Financial Studies’ 10th annual Melbourne Mercer Global Pension Index report also found that some countries have been more successful at tackling these issues than others.

“It’s a challenge that policymakers are grappling with,” said David Knox, author of the report, in a release. “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?”

The report measured 34 pension systems worldwide, and ranked them within a scoring system that ranged from 35 points and under for the worst systems, to 80 points and above for the best ones. It also assigned grades to each system based on those scores that range from A (best) to E (worst).

The pensions systems in the Netherlands and Denmark were ranked the highest by the report, scoring an 80.3 and 80.2 respectively, and were the only systems that received an A grade.  The report defines a pension system with an A grade as one that is “first class and robust,” and “delivers good benefits, is sustainable, and has a high level of integrity.”

While no systems received a B+ grade, which covers scores that range from 75 to 80, 11 countries’ pensions systems received a B grade, which means they scored between a 65 and 75 on the scale. Those include Finland, Australia, Sweden, Norway, Singapore, Chile, New Zealand, Canada, Switzerland, Ireland, and Germany.

The report defines a B-grade system as having “a sound structure, with many good features, but has some areas for improvement that differentiates it from an A-grade system.”

Colombia, the UK, Peru, and France each garnered a C+ grade, which means they scored between 60 and 65 on the scale, while Saudi Arabia, the US, Malaysia, Brazil, Hong Kong, Spain, Poland, Austria, Indonesia, Italy, and South Africa earned C grades, which covers systems that scored between 50 and 60.

A pension system with a C+ or a C grade is defined as one “that has some good features, but also has major risks and/or shortcomings that should be addressed. Without these improvements, its efficacy and/or long-term sustainability can be questioned.”

And ranked at the bottom of the list, and earning D grades, were Japan, South Korea, China, Mexico, India, and Argentina, which means they scored between 35 and 50.  The report defines a grade D system as one “that has some desirable features, but also has major weaknesses and/or omissions that need to be addressed. Without these improvements, its efficacy and sustainability are in doubt.”

No system received the lowest possible grade of an E, which is defined “a poor system that may be in the early stages of development or non-existent.”

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