Dramatically ageing populations, declining birth rates and a lack of robust retirement systems will see many countries struggle under the burden of providing adequate pensions to their senior citizens without drastic action.
This is the finding of the Melbourne Mercer Global Pension Index (MMGPI), a report now in its eighth year that fires a stern warning to governments across the globe to take immediate action.
Author of the report and Senior Partner at Mercer, Dr David Knox said the impact of longer life expectancies, combined with global declining birth rates, is much more significant than has been recognised by many governments and communities.
“This year’s report includes a projected old age dependency ratio which will raise alarm in many regions. The range of the ratio is stark – predicting that in South Africa there will be one retiree for every 7 people of working age while in Japan the number drops to one retiree for every 1.44 people of working age by 2040.”
From a local perspective, Australia is relatively well positioned with our retirement systems ranking third in the world due to our robust superannuation scheme and state-funded pension. However, there is work to be done to achieve the coveted ‘A Grade’, only ever held by Denmark and Netherlands.
The MMGPI presents the evidence, and recommends the urgent changes that governments need to make to ensure that current retirement systems are sustainable and able to provide adequate benefits for decades to come.
The MMGPI acknowledges that there are areas for improvement in all countries’ retirement income systems. Possible measures to further enhance Australia’s system include:
Introducing a requirement that part of the retirement benefit must be taken as an income stream
Increasing the labour force participation rate at older ages as life expectancies rise
Introducing a mechanism to increase the pension age as life expectancy continues to increase
- Increasing the minimum access age to receive benefits from private pension plans so that access to retirement benefits is restricted to no more than five years before the age of pension eligibility.
For more information on the findings of the 2016 Melbourne Mercer Global Pension Index and to download the full report, click here.