Singapore sees improved score in Global Pension Index

Source: Mercer. Where various countries stand on the MMGPI.

Now in its eighth year, the Melbourne Mercer Global Pension Index (MMGPI) is a warning to governments across the globe to take immediate action, or be overwhelmed by ageing populations, declining birth rates and a lack of robust retirement systems. This year, the MMGPI looked at the impact of rapidly ageing populations, and the preparedness of countries’ retirement systems to deal with the significant financial pressures this presents.

Author of the report and Senior Partner at Mercer, Dr David Knox said the impact of longer life expectancies, combined by 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 seven people of working age while in Japan the number drops to one retiree for every 1.44 people of working age by 2040,” he said.

Dr Knox said: “It is a political imperative that all countries, regardless of their size, and current standing on the MMGPI, implement the necessary policy changes to withstand future challenges presented by the globally ageing population.”



According to Professor Rodney Maddock, of the Australian Centre for Financial Studies, “We are living longer, living larger portions of their life in retirement and spending more in retirement, so we need to be well-placed to ensure fulfilling, adequately-funded retirements.”

The MMGPI shows the relative position of each country’s old age dependency ratio in respect to five key factors:

• The labour force participation of older workers aged 55 to 64

• The labour force participation of older workers aged 65 and over

• The increase in the labour force participation rate of 55 to 64 year olds from 2000 to 2015, which determines whether the country is actually experiencing more people working at older ages

• The projected increase in the retirement period from 2015 to 2035, allowing for the expected increases in life expectancy and the projected increase in the normal eligibility age for social security or the publicly funded pension

• The level of pension fund assets expressed as a percentage of GDP in each country.

Dr Knox said although these indicators are not foolproof, they are indicative of developments which impact sustainability and community confidence in the provision of future retirement benefits.

The graph below plots the relative position of each country in respect of both the projected old age dependency ratio and the impact of the five mitigating factors.

“Indonesia is an interesting example, with its relatively low old age dependency offset by a comparatively high labour force at older ages and a significant increase in the retirement age,” said Dr Knox.

Life expectancies at birth have increased by seven to 14 years in most countries during the last 40 years. Even more significantly, the increased life expectancy of a 65-year-old over the last 40 years ranges from 1.7 years in Indonesia to 8.1 years in Singapore.

“Without changes to retirement ages and ages for eligibility to access social security and private pensions, there will be increasing pressure on global retirement systems to the detriment of the financial security provided to older members of our society,” Dr Knox said.

Ranking seventh globally, Singapore retains its highest ranking in Asia for the fourth consecutive year, and sees a healthy increase in both adequacy and sustainability scores. The increase in Singapore’s score is attributable to an increased level of financial support provided by the government to the poor, and an increased level of pension assets and labour force participation at older ages, Mercer said.

Singapore’s overall score increased from 64.7 in 2015 to 67.0 in 2016, moving it closer to the ‘A’ grade, which is given to pension systems that score above 80. “While Singapore’s retirement income system remains amongst the best in Asia and saw a significant improvement in score from 2015, we are not yet the best globally. Creating incentives for corporate retirement plans, opening CPF* to non-residents and continuing to increase the labour force participation rate as life expectancies rise, will improve Singapore’s score in the future.” said Neil Narale, Singapore Mercer Marsh Benefits Leader for Mercer.

“However, Singapore is on the right track, having implemented enhanced guaranteed investment returns for older members and the introduction of the Silver Support Scheme to help low income retirees in 2016.”

The MMGPI acknowledges that there are areas for improvement in all countries’ retirement income systems. Possible measures to further enhance Singapore’s system include:

• Reducing the barriers to establishing tax-approved group corporate retirement plans 
• Opening CPF to non-residents (who comprise more than one-third of the labour force) 
• Increasing the labour force participation rate at older ages as life expectancies rise 
• Increasing exposure to growth assets

“Employers continue to be interested in sponsoring a corporate retirement plan. Policies that create incentives to promote employer participation would further increase Singapore’s grade in the future,” said Narale. “In addition, the recently announced CPF Lifetime Retirement Investment Scheme is welcome addition to CPF, which should improve exposure to growth assets in the future.”

The MMGPI is the world’s most comprehensive comparison of global pension systems, and this year it covered close to 60% of the world’s population, measuring 27 systems against more than 40 indicators to gauge their adequacy, sustainability and integrity. It included diverse countries across the Americas, Europe and Asia-Pacific regions, this year examining Malaysia and Argentina for the first time.

Supported by the Victorian Government and bringing together the best minds in Australia’s financial services and research expertise fields, the Index is testament to Victoria’s dominant position in the superannuation* and financial services sectors.

"With a strong financial services sector and deep talent pool, Victoria continues to lead the way in funds management, a central part of any superannuation and annuities system,” said Victorian State Minister for Industry and Employment, Wade Noonan.

"Through our Future Industries Fund, the Victorian Government is working closely with the financial services sector to deliver continued expansion, investment and jobs growth." 

*Central Provident Fund (CPF) refers to the pension fund system used in Singapore. Supernnuation is the pension fund system used in Australia.

TAKAUD to host inaugural Middle East Pensions Conference

Source: Middle East Pensions Conference website.

Under the patronage of the Central Bank of Bahrain, TAKAUD, the specialist provider of savings, investment and pension solutions for the MENA region, is bringing together government and financial services industry leaders concerned with the development of a robust pension provision for citizens and expatriate workers throughout the region.

The inaugural Middle East Pensions Conference will be held in Bahrain on October 18, 2016 to raise awareness and initiate action to bring the Middle East to the standard of developed countries, with pensions encompassing three sectors: the government sector providing the first layer of pension provision to citizens; the corporate sector providing a second layer of workplace pension savings to employees; and individuals themselves providing a third layer of personal savings to augment their standard of living in retirement. This three-pillar pension format is in line with the World Bank’s recommendations for an integrated pension infrastructure, and also ensures more secure and sustainable pension planning for individuals.

While GCC countries are already highly developed with respect to government pension benefits for citizens, the inaugural pensions conference will address current challenges and the advantages of enhancing pension savings benefits provided by corporations. Studies by several global employee benefits specialists show that pension benefits are highly effective in promoting employee retention and loyalty; hence enhancing productivity levels. The conference will also look at the existing expertise, systems, specialist firms, products and collaborations that could potentially build a home-grown solution that expands the regional pension industry and address local needs.

According to TAKAUD, private sector pensions are a US$30 billion industry in the Middle East. The company estimates that pension assets in the GCC can reach US$1.9 trillion if retirement savings among individuals and corporations grow to the average levels now seen in other countries. TAKAUD’s Chief Executive Officer Luc Metivier said, “The prospect of a secure retirement is essential to the well-being of individuals and families. To develop a culture supportive of retirement savings, we need concerted actions by the government, corporate and financial services sectors. With appropriate regulatory and statutory standards, technology systems and options for asset diversification, this region can match international standards and provide exceptional security to our valued workforce.”

The event is expected to attract delegates from government pension administrations, pension funds, asset management firms, actuaries, law firms, custodians, trust providers and financial services professionals. It is also of interest to executives and senior specialists in human resources, compensation and benefits and staff running employee savings schemes.

Interested?

The Middle East Pensions Conference will be held at the Four Seasons Hotel in Manama, Bahrain on 18 October 2016. Register

Singapore's CPF retirement savings systems slips in the MMGPI rankings

A slight drop in the index value of Singapore’s retirement savings system, the Central Provident Fund (CPF), has seen it slip from a B grade to C+ grade in the 2015 Melbourne Mercer Global Pension Index (MMGPI). Singapore’s overall score decreased from 65.9 in 2014 to 64.7 in 2015, moving it further away from an ‘A’ grade, which is given to pension systems that score above 80. Denmark and Netherlands are the only countries to achieve an A grade in the history of the index.

The drop in Singapore’s score is attributable to:

1) A change in calculation which reduced the level of pension assets as a percentage of GDP for Singapore. This calculation represents the amount of money set aside for retirement;

2) Most recent data from the Economic Intelligence Unit showing a decrease in the net household savings rate for Singapore;

3) The United Nations’ updated life expectancy figures in its World Population Prospects: The 2015 Revision report, showed a continued decline in mortality rates for Singapore.

“While Singapore’s retirement income system remains amongst the best in Asia, we are not the best globally. Improvement will be influenced by the legislative and regulatory environment,” said Neil Narale, Asia Retirement Leader for Mercer.

“However, Singapore is on the right track, having announced improvements to CPF in 2016, including increasing the wage limit, contributions and guaranteed investment returns for older members and introduction of the Silver Support Scheme to help low income retirees."

Now in its seventh year, the MMGPI measured 25 retirement income systems against more than 40 indicators under the sub-indices of adequacy, sustainability and integrity. The MMGPI is the world’s most comprehensive comparison of pension systems. It covers close to 60% of the world’s population and suggests how governments can provide adequate and sustainable benefits that protect their citizens against longevity risk, the risk of their ageing population outliving their savings, potentially one of the biggest economic and social risks facing many retirees today.

Author of the report and Senior Partner at Mercer Dr David Knox said, “Implementing the right reform to improve pension systems and provide financial security in retirement has never been more critical for both individuals and societies.

“The MMGPI is an important reference for policy makers around the world to learn from the most adequate and sustainable systems. We know there is no perfect system that can be applied universally, but there are many common features that can be shared for better outcomes.”

The 2015 MMGPI looked beyond the annual rankings to observe changes over the last seven years and assess which pension systems will continue to deliver and which ones are at risk.

“Our seven-year snapshot highlights the importance of measures such as adjusting the state pension age, increasing workforce participation amongst our ageing population, or funding additional contributions for future retirement income,” said Dr Knox.

All of the 11 countries that have been part of the MMGPI since it began in 2009 have experienced an increase in the expected length of retirement from 2009 to 2015, with the average length rising from 16.6 years to 18.4 years.

Five countries – Australia, Germany, Japan, Singapore and the UK – have increased their pension age to offset the increase in life expectancies, but these are not enough to halt the increasing length of retirement.

The Index also looks at the average expected length of retirement in 20 years, and by this measure, three countries have witnessed a reduction. For Canada and the Netherlands this is due to a projected increase in the state pension age from 65 to 67 during the 20 years, while for the US, life expectancy has reduced slightly. The other eight countries showed an increase.

For the 16 countries that have been part of the MMGPI since the 2011 report, the average labour force participation rate for 55 to 64 year olds has increased from 57.9% to 62.2% between 2011 and 2015, or just over 1% per year.

However, averages can be misleading. The labour force participation rate at older ages actually went backwards in the US. In Brazil, India and China, it increased by less than 4%.

“Extending the years that individuals spend in the workforce is one of the most positive ways of developing sustainable retirement systems when life expectancies are increasing,” Dr Knox said.

“While there is a natural limit to the participation rate at older ages, with most countries still below 70%, the scope for significant increases across the world remains, which would improve the sustainability of many pension systems.”

The sustainability of a pension fund cannot be assessed without reviewing the level of funds set aside today to pay future retirement benefits so that the expected pension are not a financial strain on the next generation.

There is an enormous variety in the level of pension assets held ranging from 1.8% of GDP in Indonesia and 6% of GDP in Austria to 160.6% of GDP in the Netherlands and 168.9% of GDP in Denmark.

“The diversity in pension assets held as a percentage of GDP recognises that some countries have very limited private pension arrangements whereas others have well-developed and mature pension systems. However, it is an important warning for all countries to prepare, prepare, prepare,” said Dr Knox.

The MMGPI notes that there is room for improvement in all countries’ retirement income systems. Suggested measures to improve Singapore’s system include:

· Reducing the barriers to establishing tax-approved group corporate retirement plans;

· Opening CPF to non-residents (who comprise more than one-third of the labour force);

· Increasing the labour force participation rate amongst older workers.

“Employers continue to be interested in either sponsoring a corporate retirement plan, or privately managing parts of the CPF investments. Policies that include employer participation would further increase Singapore’s grade in the future,” said Narale.

The Index looks objectively at both the publicly-funded and private components of a system, as well as personal assets and savings outside the pension system. It is published by the Australian Centre for Financial Studies (ACFS) in conjunction with Mercer and is funded by the Victorian State government of Australia. 

Interested?

Look at the Index in more detail