Melbourne Mercer Global Pension Index

Transkript

1 15 October 2009 Melbourne Global Pension Index Dr David Knox

2 The Genesis Victorian Government wants to highlight the significant role that Melbourne plays in the pension and funds management industries The role of the Melbourne Centre for Financial Studies 1

3 What would a good (or ideal) pension system look like? What is provided? What are the right benefit levels? What is important in the design? (pre and post retirement) Who pays? What is the balance? Can it last? Are the right building blocks in place? Is it sustainable? What about funding? What about the demographic impact? How does the system work? Where does supervision fit in? Who is involved? Is it costly to run? Are members protected at all? 2

4 Can systems be compared? Variety of pension systems is considerable Mix of public and private provisions OECD: classifying pension systems and different retirement income systems is difficult. Comparable data is not always available Is a global pension index possible? Too important to be ignored 3

5 Eleven countries in the Index Americas Canada Chile USA Europe Germany Netherlands Sweden UK Asia China Japan Singapore Australia 4

6 Step 1 - Adequacy Benefit levels 45% Minimum pension; median income earner indicators Savings Tax support Benefit design 15% 10% 30% Household saving rate Incentive for voluntary contributions Access age; portability; income stream sub-index Adequacy 5

7 Example Net replacement rate 6

8 Adequacy results Grade Countries A (>80) B (65-80) C (50-65) D (35-50) Netherlands (80.5) Canada (76.2) Sweden (68.5); Australia (68.1) China (64.7); Germany (60.8) UK (56.6); Singapore (51.7) USA (49.2); Chile (48.9) Japan (39.2) 7

9 Step 2 - Sustainability indicators Coverage Assets/funding Demography Government debt 20% 35% 20% 10% % of workforce in private plans Level of assets; contributions Life expectancy - state pension age; old age dependency Allowing for SWFs Labour force 15% Participation at older ages sub-index Sustainability 8

10 Example Level of pension assets as a % of GDP 9

11 Sustainability results Grade Countries A (>80) B (65-80) C (50-65) D (35-50) E (<35) Sweden (75.2); Australia (71.0) USA (69.4); Singapore (68.9) Canada (64.2); Netherlands (62.5) UK (56.4); Chile (54.1); Germany (44.3) China (38.5) Japan (34.4) 10

12 Step 3 Integrity of private sector indicators Prudential regulation Governance Risk protection 25% 25% 25% Approval? Separation? Activity? Requirements? Policies? In-house assets? Funding levels? Loss? Communication 25% On joining? Annual report? Personal? sub-index Integrity 11

13 Integrity results Grade A (>80) B (65-80) C (50-65) D (35-50) Countries Netherlands (88.2); Australia (87.8); UK (86.3) Chile (84.5); Canada (80.9) Sweden (79.1) USA (63.4) Japan (55.2) Singapore (49.1) E (<35) China (34.7); Germany (33.7) 12

14 But then 3 sub-indices indicators Benefit levels Savings Tax support Benefit design Coverage Assets/funding Demography Government debt Labour force Prudential regulation Governance Risk protection Communication sub-index Adequacy Sustainability Integrity 40% 35% 25% Melbourne Global Pension Index 13

15 Overall results Grade Countries A (>80) B (65-80) C (50-65) D (35-50) Netherlands (76.1) Australia (74.0); Sweden (73.5); Canada (73.2) UK (63.9); USA (59.8); Chile (59.6); Singapore (57.0) Germany (48.2); China (48.0) Japan (41.5) 14

16 Sources of data OECD Economist Intelligence Unit United Nations International Labour Office CIA Factbook Sovereign Wealth Fund Institute consultants worldwide 15

17 Some common themes to obtain higher index values Encouraging higher levels of savings Increasing coverage in the private sector Promoting a diversity of retirement income products Increasing the State pension age Promoting higher labour force participation at older ages 16

18 Where does Australia sit? Not first or last B grade... a good effort but could do better 17

19 Can Australia become A grade? Raise level of contributions Introduce a requirement for an income stream Introduce a mechanism to keep increasing pension age Increase labour force participation rate for older workers 18

20 Next steps This is a pilot study! We would love to keep doing it Increase the number of countries and indicators (eg costs) Your reaction, feedback and suggestions are very welcome globalpensionindex@mercer.com 19

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