Singapore retains its status as the top Asian retirement income system and ranks 7th of those reviewed by the 12th annual Mercer CFA Institute Global Pension Index, a study of 39 retirement income systems across the globe which covers almost two-thirds of the world’s population. The 2020 Global Pension Index, which measures each retirement system through three sub-indices (sustainability, adequacy and integrity, includes two new countries – Belgium and Israel.
Singapore’s overall index value has increased to 71.2, signaling an incremental improvement in the last two years (against 70.8 in 2019, and 70.4 in 2018). For each sub-index, Singapore’s highest scores were for integrity (82.5), followed by adequacy (74.1), and sustainability (59.9). The global average sits at 71.3 for integrity, 60.8 for adequacy and 50 for sustainability.
The country is ranked: 7 th for adequacy which looks at benefits, system design, levels of savings, and home ownership among others to determine its ability to provide adequate retirement income; 11th for integrity which considers factors such as regulation, governance, communication and operating costs; and 12th for sustainability which measures the likelihood a system will be able to provide benefits into the future.
Singapore has also retained its “B” grade, connoting a pension system with a sound structure, with many good features, but has some areas for improvement before it can reach an “A” grade status. Singapore received the same grade as a number of developed countries such as Switzerland, New Zealand and Australia.
Chong Chee Loong, Wealth Business Leader, Singapore, Mercer said: “The overall index value for the Singapore system could be increased by reducing the barriers to established tax-approved group corporate retirement plans, and increasing the age at which Central Provident Fund members can access their retirement savings. The system would also be fortified by opening the CPF to non-residents working in Singapore given they comprise a significant portion of the workforce.”
Meanwhile, the Netherlands had the highest index value (82.6) and has retained its top position and “A” grade in the overall rankings, notwithstanding the significant pension reforms occurring in that country. Thailand had the lowest index value (40.8).
The Global Pension Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity to measure each retirement system against more than 50 indicators. The 2020 Global Pension Index introduces new questions relating to public expenditure on pensions, ESG (environmental, social and governance) investing and support for caregivers.
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).
Current Economic Environment Puts Additional Stress on Retirement Systems
The widespread economic impact of COVID-19 is heightening the financial pressures which retirees face, both now and in the future, the study found. Coupled with increasing life expectancies and the rising pressure on public resources to support the health and welfare of ageing populations, COVID-19 is exacerbating retirement insecurity. The average sustainability score dropped by 1.2 in 2020 due to the negative economic growth experienced in most economies due to COVID-19.
Dr David Knox, Senior Partner at Mercer and lead author of the study, said: “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.”
“Even before COVID-19, many public and private pension systems around the world were under increasing pressure to maintain benefits,” said Margaret Franklin, CFA, President and CEO at CFA Institute.
“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.”
COVID-19’s impact to the future of pension systems
The impact of COVID-19 is much broader than solely the health implications; there are long term economic effects impacting industries, interest rates, investment returns and community confidence in the future. As a result, the provision of adequate and sustainable retirement incomes over the longer term has also changed.
The level of government debt has increased in many countries following COVID-19. This increased debt is likely to restrict the ability of future governments to support their older populations, either through pensions or through the provision of other services such as health or aged care.
To help alleviate the impact of COVID-19, governments deployed a diverse range of responses to support their citizens and pension systems.
Professor Deep Kapur, Director of the Monash Centre for Financial Studies (MCFS), said that many governments around the world have responded to COVID-19 with substantial fiscal stimulus, and central banks have adopted unconventional monetary policy. “The outlook for investment returns is muted while volatility may be elevated, adding to the normal challenges of risk management in a pension portfolio.
“Additionally, some governments have allowed temporary access to saved pensions or reduced the level of compulsory contribution rates to improve liquidity positions of households. These developments will likely have a material impact on the adequacy, sustainability and integrity of pension systems, thereby influencing the evolution of the Global Pension Index in the coming years,” Kapur added.
Singapore pledged around SGD100 billion in stimulus measures across five announcements between May and August this year to fight the impacts of the pandemic. These included wage subsidies, transformation initiatives, reskilling operations, and cash grants. It also deferred the planned increase in CPF contribution rates for senior workers by a year to 1 January 2022. Initially, the increase was to take place from January 2021 – seeing employers and workers contributing either 0.5 or 1 per cent more for workers aged between 55 to 70, based on the workers’ age.
Mr Chong said, “The government has focused on safeguarding businesses and Singaporeans during this time and in doing so has also looked to maintain the strength of its pension system. In addition to the deferment of an increase in CPF contribution rates, it introduced a CPF Transition Offset Scheme to support employers, intended to cover half of the increase in employer CPF contribution rates for a year, based on employees’ incomes paid up to the ceiling of SGD6,000 per month in 2022.”
COVID-19 has also increased gender inequality in pension provision.
Janet Li, Mercer’s Wealth Business Leader for Asia said, “Even before the pandemic, the gender retirement savings gap in Asia was exacerbated by the longer life expectancies of women, lower participation of women in the workforce and gender pay inequity. Now, that gap is expected to widen further, particularly in the hardest hit sectors where women represent more than half of the workforce, such as hospitality and food services.”
About the Mercer CFA Institute Global Pension Index
Formerly known as the Melbourne Mercer Global Pension Index, the Global Pension Index benchmarks retirement income systems around the world.
The Global Pension Index is a collaborative research project sponsored by CFA Institute, the global association of investment professionals, in collaboration with the Monash Centre for Financial Studies (MCFS), and Mercer, a global leader in redefining the world of work and reshaping retirement and investment outcomes.
The Global Pension Index uses the weighted average of the sub-indices of adequacy, sustainability and integrity to measure each retirement system against more than 50 indicators. The 2020 Global Pension Index introduces new questions relating to public expenditure on pensions, ESG (environmental, social and governance) investing and support for caregivers.
For more information about the Mercer CFA Institute Global Pension Index, click here.
-ENDS-
2020 Mercer CFA Institute Global Pension Index
System |
Overall 2020 index value |
Sub-index values |
||
Adequacy |
Sustainability |
Integrity |
||
Argentina |
42.5 |
54.5 |
27.6 |
44.4 |
Australia |
74.2 |
66.8 |
74.6 |
85.5 |
Austria |
52.1 |
64.4 |
22.1 |
74.6 |
Belgium |
63.4 |
74.6 |
32.4 |
88.9 |
Brazil |
54.5 |
72.6 |
22.3 |
70.7 |
Canada |
69.3 |
68.2 |
64.4 |
77.8 |
Chile |
67.0 |
56.5 |
70.0 |
79.6 |
China (mainland) |
47.3 |
57.4 |
36.2 |
46.7 |
Colombia |
58.5 |
62.5 |
45.5 |
70.5 |
Denmark |
81.4 |
79.8 |
82.6 |
82.4 |
Finland |
72.9 |
71.0 |
60.5 |
93.5 |
France |
60.0 |
78.7 |
40.9 |
57.0 |
Germany |
67.3 |
78.8 |
44.1 |
81.4 |
Hong Kong SAR |
61.1 |
54.5 |
50.0 |
87.1 |
India |
45.7 |
38.8 |
43.1 |
60.3 |
Indonesia |
51.4 |
45.7 |
45.6 |
68.7 |
Ireland |
65.0 |
74.7 |
45.6 |
76.5 |
Israel |
74.7 |
70.7 |
72.4 |
84.2 |
Italy |
51.9 |
66.7 |
18.8 |
74.4 |
Japan |
48.5 |
52.9 |
35.9 |
59.2 |
Korea |
50.5 |
48.0 |
53.4 |
50.3 |
Malaysia |
60.1 |
50.1 |
58.6 |
78.0 |
Mexico |
44.7 |
36.5 |
55.8 |
42.2 |
Netherlands |
82.6 |
81.5 |
79.3 |
88.9 |
New Zealand |
68.3 |
63.8 |
62.9 |
82.9 |
Norway |
71.2 |
73.4 |
55.1 |
90.3 |
Peru |
57.2 |
59.5 |
49.2 |
64.6 |
Philippines |
43.0 |
38.9 |
53.4 |
34.8 |
Poland |
54.7 |
59.9 |
40.7 |
65.9 |
Saudi Arabia |
57.5 |
59.6 |
51.6 |
62.4 |
Singapore |
71.2 |
74.1 |
59.9 |
82.5 |
South Africa |
53.2 |
43.0 |
46.7 |
78.3 |
Spain |
57.7 |
71.0 |
27.5 |
78.5 |
Sweden |
71.2 |
65.2 |
72.0 |
79.8 |
Switzerland |
67.0 |
59.5 |
64.2 |
83.1 |
Thailand |
40.8 |
36.8 |
40.8 |
47.3 |
Turkey |
42.7 |
44.2 |
24.9 |
65.3 |
UK |
64.9 |
59.2 |
58.0 |
83.7 |
USA |
60.3 |
58.9 |
62.1 |
59.9 |
Average |
59.7 |
60.9 |
50.0 |
71.3 |
About Mercer
Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s more than 25,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a business of Marsh & McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 76,000 colleagues and annual revenue of $17 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.
About CFA Institute
CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion of ethical behaviour in investment markets and a respected source of knowledge in the global financial community. Our aim is to create an environment where investors’ interests come first, markets function at their best, and economies grow. There are more than 178,000 CFA charterholders worldwide in 162 markets. CFA Institute has nine offices worldwide and there are 159 local member societies. For more information, visit www.cfainstitute.org or follow us on Twitter at @CFAInstitute and on Facebook.com/CFAInstitute.
About the Monash Centre for Financial Studies (MCFS)
A research centre based within Monash University's Monash Business School, Australia, the MCFS aims to bring academic rigour into researching issues of practical relevance to the financial industry. Additionally, through its engagement programs, it facilitates two-way exchange of knowledge between academics and practitioners. The Centre’s developing research agenda is broad but has a current concentration on issues relevant to the asset management industry, including retirement savings, sustainable finance and technological disruption.
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