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UK drops down two places on Australian pension index

27 October 2016

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The UK has dropped from ninth to 11th in this year's Melbourne Mercer Global Pension Index (MMGPI).

The eighth annual index, from the Australian government and The Australian Centre for Financial Studies, objectively ranks both the publicly funded and private components of 27 countries' pension systems.

It looks at the impact of ageing populations and how prepared countries' retirement systems are to deal with that financial pressure.

The 2016 index revealed the UK's pension system has dropped behind Ireland and Singapore, related to a cut in the pensions an employee can expect from both the state and occupational schemes.

Mark Condron, senior partner and Mercer UK's retirement business leader, said the change in position was in part due to pension reforms.

"The 2016 state pension reforms are expected to provide less generous state pensions for many workers, compared to the historic earnings-related system," he said.

"The generous defined benefit schemes of the past stand in sharp contrast to today's typical defined contributions, applied under auto-enrolment requirements."

The UK received a C+ grade with a score of 60.1 out of 100, down from a B grade and score of 65.0 in 2015.

The grade indicates although there are positive features present, the system also contains major risks and shortcomings that need to be addressed.

Condron said the challenges for many UK businesses mirror those of the government and wider society.

"Large historic entitlements have built up for current pensioners, in contrast, members of the proportionately smaller active workforce are not on track to build up the same pension pots," he said.

"With many employees unable to retire as a result, businesses need to prepare for a wider demographic in the workforce by ensuring pensions and savings offerings cater for them all."

The UK ranking is expected to improve over the years as the implementation of auto-enrolment reaches its final stage.

The report suggests that, along with auto-enrolment, the British system could gain a higher rank by taking a number of steps, including increasing the level of contributions to occupational pension schemes, increasing the coverage of employees in such schemes, and raising the level of household savings.

Denmark, the Netherlands, and Australia held the top three positions in the index.

First published 27.10.2016